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India ASEAN Free Trade Agreement Implications for India’s Economy

A Deloitte-FICCI White Paper March 2011 www.deloitte.com/in

Table of Contents

Abbreviations .......................................................................................................... 1 Federation of Indian Chambers of Commerce and Industry (FICCI) ..................... 4 About Deloitte ......................................................................................................... 5 1. Executive Summary ........................................................................................... 6 2. Introduction ......................................................................................................... 9 2.1 Background and Scope ............................................................................. 9 2.2 Roadmap ................................................................................................. 10 3. Decoding FTA‟s ............................................................................................. 12 3.1 Economics of Free Trade ........................................................................ 12 3.1.1 Benefits of Free Trade .................................................................. 12 3.1.2 Historical Background ................................................................... 12 3.1.3 Impediments to Free Trade .......................................................... 13 3.1.4 Trade Liberalization and FTA‟s..................................................... 13 3.2 Trade Patterns in Asia ............................................................................. 15 3.3 FTAs in Asia............................................................................................. 16 3.4 Challenges Posed by FTAs in Asia ......................................................... 19 4. Benefits from FTA‟s and the Empirical Evidence .......................................... 22 4.1 Economic Growth .................................................................................... 22 4.2 Price Reductions ...................................................................................... 24 4.3 Gains from product variety....................................................................... 25 4.4 The Survival of More Productive Firms ................................................... 25 4.5 Trade and Employment ........................................................................... 26 4.6 Attracting Foreign Investments: ............................................................... 27 5. Economic Impact of India-ASEAN FTA ......................................................... 29 5.1 India ASEAN Trade and Impact of FTA on the Economy ....................... 29 5.1.1 Export Intensity & Trade Intensity Indices .................................... 31 5.1.2 Sectorial Hirschman ..................................................................... 33 5.1.3 Complementarity index ................................................................. 35 5.2 Impact of FTA on Indian Industries Based on Revealed Comparative Advantage ...................................................................................................... 36 5.2.1 Overview of the Sectors ............................................................... 38

......... 63 6................ 94 .......................................................3 Impact of FTA on Services Sector ......1..................................................................................... 64 6..................................... 83 6..1............... 51 5.3..............................................3.......................................3 Competitiveness analysis ........................... 89 Appendix 2 .................................................... 53 5...3............ 56 5......................................................................................................1.....................1 Findings based on current open project tenders ............. 89 Appendix 1 ...................... 87 8................1.. 38 5.. 54 5. 85 7......5 Philippines ............................................................... 93 Contacts ...................1..3 Financial Service sector .3......................................................................................................... 55 5.....................................................2 Textiles......... 57 5....... 71 6............................................................2 Singapore ....... Appendix ................4 Insurance services ..............2 Computer and Information Services ..................4 Impact on Industry – Supplementary Evidence .......................................5.............................................. 44 5.................................................................................................................. 76 6.........6 Vietnam .......1 Telecommunication . 64 6..............1..............................................4 Thailand ............... Apparels and Accessories .............................................2........................... 82 6...............................................................5 Construction Services ................................ 57 6........................................1 Malaysia .......... India-ASEAN FTA and Vision for India‟s Growth ................3 Indonesia ................................................................................. 92 Appendix 3 .....................2............................3....... Business Opportunities in ASEAN Countries ..................................................................................

Abbreviations 1MDB ACE ADB AIFTA APEC ARIC ASEAN ASEAN+3 1Malaysia Development Berhad ASEAN Centre for Energy Asian Development Bank ASEAN India Free Trade Area Asia Pacific Economic Co-operation Asia Regional Integration Centre Association of South-East Asian Nations The 10 ASEAN countries plus People's Republic of China.S. India Canada-U. Australia . Republic of Korea and State of Japan The five countries of Singapore . Brunei Darussalam &Thailand Associated Chambers of Commerce of India Bengal Initiative for Multisectoral Technical and Economic Cooperation Business Opportunities Communications Content & Infrastructure. People's Republic of China. Lao's People Democratic Republic Complaining Party Consumer Price Index Department of Industrial Policy and Promotion (ASEAN-India) Dispute Settlement Mechanism Agreement ASEAN+6 ASEAN 5 ASSOCHAM BIMSTEC BO CCI CEPC CFTA CITI CMLV CP CPI DIPP DSM 1 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . Republic of Korea and State of Japan The 10 ASEAN countries along with India. Malaysia . Malaysia Carpet Export Promotion Council. NewZealand. Free Trade Agreement Confederation of Indian Textile Industries. India Acronym for Cambodia. Myanmar. Indonesia.

national Corporation Maintenance. India Kuala Lumpur International Airport Expressway Kuala Lumpur International Financial District Lao People‟s Democratic Republic Liquefied Natural Gas Millennium Goal Most Favored Nation Multi.E&E EPP ESC ETP EU FDI FICCI FTAA FTA GATT GDP GERD GLC GNI ICT IP IT KG D 6 KLIA Expressway KLIFD LAO PDR LNG MDG MFN MNC MRO MRT MTDC NAFTA NKEA Electrical and Electronics Entry Point Projects Economic Strategies Committee . Repair and Overhaul Mass Rapid Transit Malaysian Technology Development Corporation North American Free Trade Agreement National Key Economic Areas 2 .Singapore Economic Transformation Programme European Union Foreign Direct Investment Federation of Indian Chambers of Commerce and Industry Free Trade Area of the Americas Free Trade Agreement General Agreement on Tariff and Trade Gross Domestic Product Gross Expenditure on R&D Government-linked company Gross National Income Information and communication technology Intellectual Property Information Technology Krishna Godavari-D6 Gas project.

S. Development and Commercialization Revealed Comparative Advantage Reliance Industries Limited Request for Proposal Ringgit Malaysia Rules of Origin South Asian Association for Regional Cooperation Sarawak Corridor of Renewable Energy. Malaysia Standard International Trade Classification Small and Medium Enterprise United Arab Emirates United Kingdom United States of America U.OECD PCA PRCPTA R&D R&D&C RCA RIL RFP RM ROO SAARC SCORE SITC SME UAE UK US/ USA USTR WTO Organization for Economic Cooperation and Development Party Complained Against People‟s Republic of China Preferential Trade Agreement Research and Development Research. Trade Representative World Trade Organization 3 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .

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Drawing upon the mixed findings of the impact of other FTAs on the member countries. a greater trade dependence will possibly allow India‟s exports to ASEAN to increase in the years ahead. it is therefore not surprising that the impact of the India-ASEAN FTA on the Indian economy is also likely to benefit some constituents while it will negatively impact certain sectors in the short run. The theoretical underpinnings leading to an advocacy for free trade agreements is unequivocal as free trade is expected to increase production. However the practical experience and lessons from the FTA‟s that have been in place in other regions of the world does not provide the necessary backing to the conclusions that emerge from the theory of free trade. Currently the FTA is restricted to trade in goods while negotiations for a similar agreement for services are currently under way. Moreover. we also find that India has increasingly been concentrating its exports to ASEAN towards mineral fuels and 6 . improve specialization and lead to other welfare improvements in the long run for consumers and producers alike. 2009.8 billion people and proposes to gradually slash tariffs for over 4. The FTA collectively covers a market of nearly 1. and came into effect from January 1. It is expected to be in place with all member countries by 2016. we find strong reason to advocate that the success of the FTA is critically dependent on the existence of good institutions in the country and an efficient regulatory environment such that they act as true enablers for the benefits to flow through and disperse throughout the economy.000 product lines. employment and trading patterns in India in the years to come? What opportunities and threats should Indian businesses be aware of? These are some of the issues that we address in this white paper. Seen in light of the fact that currently ASEAN region exports more to India than what India exports to ASEAN. Thailand and Singapore. Drawing upon existing research. We find evidence that the implementation of the FTA can only result in intensifying the trade dependence amongst India and ASEAN. What is therefore the likely impact of the India-ASEAN FTA on the Indian economy? What industries will benefit from the implementation of the FTA and what industries will be hurt? Is this likely to create a significant impact on the wages.1. 2010 with Malaysia. Executive Summary The India ASEAN Free Trade Agreement (FTA) was signed in Bangkok on August 13. help improve productivity in Indian manufacturing and usher in an environment (driven by healthy competition) that can promote greater business ties leading to employment creation and greater trade within India and ASEAN. Benefits from the FTA can possibly have a positive impact on India‟s growth rate.

mineral oils. We also find evidence that a FTA with services (that is currently being discussed) will certainly be a boost to the services sector in the Indian economy and will help in sustaining the growth momentum in the medium to long term. The basis for this analysis stems from the fundamentals of trade theory that concludes that free trade will result in specialization in certain products/industries in which a country enjoys a comparative advantage and will end up producing and exporting more products from these industries. Thailand and Philippines. Finally. we find ample evidence to suggest that the FTA will open up opportunities for Indian businesses in Malaysia. we extrapolate the possible implications of the FTA on the services sector through secondary multiplier effects on the economy. We also find evidence that suggests that the trading profile between India and ASEAN is such that ASEAN exports to India when matched against India‟s import profile is more compatible in contrast with India‟s exports to ASEAN and its import profile. Indonesia. Our industry specific analysis focuses on determining the relative comparative advantage enjoyed by India‟s industry vis-a-vis that of the ASEAN trading partners. we find that the following Indian industries enjoy a greater competitive advantage relative to their counterparts in the ASEAN countries:  Chemicals  Medical and pharmaceutical  Textiles. the following industries in ASEAN enjoy a larger competitive advantage than the counterparts in India:  Machinery and appliances  Electrical equipment The automobile industry (including auto parts and ancillaries) is on the borderline with no clear trend that may allow us to conclude whether India or ASEAN has a clear advantage over the other. We have highlighted important initiatives announced by the respective governments in these countries as well as projects with open tenders that will become accessible to Indian businesses to further their business 7 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . Other sectors/industries can also be expected to benefit through greater efficiencies achieved through specialization although a more indepth analysis will need to be conducted to arrive at any affirmative conclusion in this regard. apparels and accessories  Handicrafts & carpets On the other hand. Singapore. these sectors will benefit more as they will be best poised to avail of their greater presence within ASEAN. Based on our analysis. Although the current FTA is restricted to that in goods alone. It is therefore plausible that post the implementation of the FTA. This implies that ASEAN trade will benefit more post implementation of the FTA compared to the perceived gains from trade that India is likely to experience.

interests in these countries. These opportunities will result in enhancing the growth of key businesses in these sectors with the benefits of income and employment generation in India that will add to the India growth momentum. We duly emphasize the importance of an enabling policy environment that can enhance or pull down the chances of the FTA becoming a catalyst in India‟s growth story. No free trade agreement can result in the intended outcome in fostering trade, growth and employment creation in a country if the FTA is juxtaposed against a myriad set of conflicting subsidies and taxes in the domestic front that can destroy the very competitiveness that the FTA can usher in. This is critical to the success of the India ASEAN FTA and cannot be emphasized enough.

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2. Introduction

2.1 Background and Scope
The India ASEAN Free Trade Agreement (FTA) was signed in Bangkok on August 13, 2009, and came into effect from January 1, 2010 amidst mounting scepticism from the business community in India regarding the asymmetric impact of this agreement on certain sectors of the Indian economy. The FTA, drafted after almost six years of tough negotiations, is expected to be implemented in phases with Malaysia, Thailand and Singapore implementing the agreement from January 1, 2010 in the first phase. The FTA, considered the world's largest, covers a market of nearly 1.8 billion people and proposes to gradually slash tariffs for over 4,000 product lines over a staggered period, by 2016. However, certain specified products on both sides will be shielded to some degree. This FTA aims at opening a 1.8 billion consumer market to the member countries with a combined GDP of $ 2.3 trillion. In addition, ASEAN-India bilateral trade has been growing steadily from 1993 and stood at US$ 43.9 billion as of 2009-10 with ASEAN‟s export to India at US$ 25.79 billion and imports from India at US$ 18.1 billion as of the same year. As for foreign direct investment (FDI), the inflow from India to ASEAN member States was US$ 476.8 million in 2008, accounting for 0.8 per cent of total FDI in the region. Total Indian FDI into ASEAN from 2000 to 2008 was US$ 1.3 billion. Just like any other FTA, the India-ASEAN FTA has also been mired in political controversy despite the economic principle that advocates free trade as a desirable trading form benefiting all partners through mutual access to greater markets, free flow of labour and capital, reduced transaction costs of doing business across geographies and an efficient allocation of resources to the various production forms. Driven by the theoretical underpinnings of free trade and the empirical evidence from FTA‟s implemented in various regions of the world, this white paper takes a closer look at the India-ASEAN FTA and explores its impact on the Indian economy. It provides a balanced view of the pros and cons associated with the FTA and evaluates its impact on key industries in India – both from the standpoint of opportunities that are likely to be created as well as the challenges posed on them from greater competition that the FTA is likely to
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A complete summary of the Indo-ASEAN FTA along with its salient features is provided

in Appendix 1.

9 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper

usher in. An important analysis presented in this paper is the possible impact of the FTA on some key industries using the relative production advantages or disadvantages that Indian industry reflects in the region.

2.2 Roadmap
Our white paper starts by summarizing the theory governing free trade. Several assumptions have been made by economists to conclude on the benefits of free trade. Notable among them is the notion of “free markets” i.e. markets that are not constrained by the existing regulatory environment. It is important to understand this framework as any meaningful discussion on the benefits of free trade will necessarily have to be evaluated in a larger environment where other existing policy parameters (and their impact on the specific industries) may act as a deterrent to the realization of the full benefits from trade. Before moving on to an analysis of the impact of the FTA on India, we summarize the impact of other existing FTA‟s on the participating nations. The evidence on the benefits of such trade pacts in other regions is mixed and the success, if any, can best be described as limited. However, trade relations and the impact of trade liberalization is a dynamic phenomenon and we recognize the limited tenure of some of these agreements to be able to draw meaningful conclusions; hence, it is possible that a longer term analysis on the impact of other FTA‟s is required before one draws a conclusion about their success. We then provide a snapshot of the characteristics of India-ASEAN trade. This allows us to delve into a before and after comparison of the impact of the FTA on the Indian economy. We focus on some of the key member countries that are a party to the FTA and draw inferences on the impact of the agreement on the Indian economy based on the economic policies and priorities that have been announced by the respective countries. As the current India-ASEAN FTA pertains to goods only, we restrict our analysis to the impact on those sectors that are directly impacted by the FTA. However, inter-industry linkages and multiplier effects in the economy are important determinants that will ensure that the impact from the FTA will flow through to the other sectors as well. We make some observations on the impact of the FTA on the services sector in this context. Several large scale projects initiated and announced in the ASEAN region in the recent past may open up opportunities for Indian businesses once the FTA is operationalized. We provide a summary of such initiatives as a part of the opportunities from the FTA section B in this paper. We also discuss the possible short term impact of the FTA on some Indian industries arising from trade diversion and specialization that are associated with any FTA of this kind. Specific sectors and the impact of the FTA on them are also discussed. The feedback from the industries is summarized based on anecdotal evidence and our analysis from them. We also provide a theoretical analysis of the impact of the FTA on the focus industries based on the principles of trade theory.

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our observations are interesting in their own right and may pave the way for greater analysis and fine-tuning in the future. A large part of this discussion is subjective and we recognize the limitations of our conclusions based on other contingencies that are not explored or taken up in detail. we juxtapose the FTA on the growth path of the Indian economy and conclude on how this will play out over the next decade in terms of India‟s growth rate as well as some other social sector priorities. 11 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .Finally. Nonetheless.

including the poorest. 3. Economics tells us that we can benefit when these goods and services are traded. if each country specializes in the good in which it has a comparative advantage. But.g. it is also supported by evidence as captured by world trade and economic growth trends since the Second World War. then all countries can gain from trade. originally put forth by Adam Smith in “The Wealth of Nations” in 1776.2 Historical Background The desirability of free trade. empirical research indicates a definite statistical link between freer trade and economic growth. Simply put. have resources – human. More significantly. industrial. In other words. the principle of “comparative advantage” says that countries prosper by concentrating their resources in on what they can produce best. The importance of global free trade can be grasped by the fact that there are currently 153 countries that are members of the World Trade Organization (“WTO”) – the international organization whose main function is to ensure that trade flows as smoothly. world economic growth accelerated and averaged approximately 5 percent per annum during this period. was first demonstrated theoretically by 19th century English economist David Ricardo. technological advances). financial – which they can employ to produce goods and services for their domestic markets or to compete overseas. Economic theory points to strong reasons for the link. Decoding FTA’s 3.1 Benefits of Free Trade The economic case for an open trading system based on multilaterally agreed rules rests largely on commercial common sense.1. natural. This was accompanied by significant increases in world trade that averaged approximately 8 percent per annum over the same period.3.1. motivate innovation and breed success. predictably and freely as possible. liberal trade policies – policies that allow the unrestricted flow of goods and services – sharpen competition. While an increase in growth may be driven by a number of factors (e. Ricardo showed that in a world where labor is the only factor of production. All countries. Ricardo‟s seminal work has spawned a rich literature in international trade theory 12 . and then trading these products for products that other countries produce best. The first 25 years after the war witnessed steep reductions in tariffs.1 Economics of Free Trade 3. The intuition is that this kind of specialization maximizes global production of goods and enables countries to enjoy greater levels of consumption through international trade.

capital. In other words. Of particular interest is the Heckscher-Ohlin theory that introduced a second factor of production. Markusen et al. It should be noted that there can be a number of other regulatory/administrative measures that can be put in place to indirectly restrict import quantities.3 Impediments to Free Trade Given the overwhelming theoretical basis favouring free trade. II. and showed that a country will export the commodity that intensively uses the factor that is relatively more abundant in that country (and will import the good that intensively uses the scarce factor). as observed by Markusen et al.. it is somewhat surprising to find that free trade is almost never observed in practice. 3. in its purest form. refers to the unfettered export and import of goods and services between one country and another with no government intervention on either country‟s side. 3.1. Another form of non-tariff barrier to free trade is found in “Domestic Content Requirements” that are regulations wherein importers are forced to import goods that contain minimum prescribed amounts of domestically produced components. This latter type of agreement is called a “preferential 13 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . the question often arises as to what countries can do to lower or eliminate trade barriers among themselves. However. Non-tariff barriers: These can be in form of quantitative restrictions on imports/exports (“quotas”) or existing government regulations governing technical and safety standards for products that can have the effect of restricting imports. the Heckscher-Ohlin theory may be used to support certain empirical observations including evidence that labor-abundant developing nations such as India tend to export labor-intensive goods such as clothing. state that trade liberalization often occurs in the form of a multilateral agreement such as the various trade negotiation rounds of the General Agreement on Tariffs and Trade (“GATT”).showing that even under more general conditions. Such restrictions are commonly imposed on the domestic operations of foreign firms that engage in foreign direct investment in production facilities in the regulating country. barriers to free trade are an observed phenomenon and manifest themselves as: I. or an agreement among a smaller set of countries. Tariff barriers: A “tax” on imports that are invoked by countries mainly to protect the domestic industries from the possible consequences of greater competition.4 Trade Liberalization and FTA’s Given the existence of trade barriers (regardless of origin) at any point in time. Efforts to do so are broadly referred to as “trade liberalization” and can take several forms. Ricardo‟s conclusion that free trade is mutually beneficial continues to hold good. Free trade. footwear etc.1. typically with some geographical proximity.

then increased competition from foreign products dampen domestic monopoly inefficiencies. also adopt a common tariff against non-member countries. labor and capital) across national boundaries.  Increase in Incomes/Growth: An FTA expands trade volumes among member countries and tends to increase incomes/growth of the members. a “common market” is formed.  Trade Diversion: Trade diversion refers to the possibility of an FTA member country switching its import supplier from a more efficient (low cost) country to a less efficient member country resulting in an inefficient allocation of resources.  Reduction of Monopoly Inefficiencies: If inefficient monopolies exist in the domestic market.  Economic Union: Greater levels of economic integration may take place in the case of an “economic union”. Potential Negative Effects of FTAs There can also be potential drawbacks associated with FTAs. starting from a situation of tariff-distorted trade. if not eliminate them altogether. by eliminating tariffs.  Availability of Greater Product Variety: The opening up of free trade increases trade flows and expands the variety of products available to consumers in the home country. The North American Free Trade Agreement (“NAFTA”) signed by the United States.  Customs Union: A higher level of economic integration takes the form of a “customs union” in which member countries.  Free trade area: A “free trade area” is the least restrictive of PTAs and consists of a number of countries that agree to eliminate all trade barriers among themselves while keeping intact their existing tariffs with non-member countries. expands a member country‟s export market thereby allowing it to expand its scale of operations and lower its average cost of production. The European Union is the classic example of an economic union.g. a common market in which members coordinate monetary.e.. Intuitively. 14 . in addition to eliminating all trade barriers among themselves.. fiscal policies and other policies. Canada and Mexico is an example in this regard.trade agreement” (“PTA”) and forms the starting point for our analysis of the ASEAN-India Free Trade Area (“AIFTA”) under consideration. the elimination of tariffs allows each member to specialize in the production of the goods in which it has a comparative advantage and trade those goods in exchange for imports of other goods from fellow members. Beneficial Effects of FTAs The beneficial effects of FTAs are several as listed below.  Common Market: When the cooperation among member states is extended to allow free movement of factors of production (e. i.  Achievement of Economies of Scale: An FTA.

Geographical proximity to the expanding.2 Trade Patterns in Asia Asia‟s rise in the 1960s from a poor underdeveloped agro based economy to a „global factory‟ has been spectacular. 3. imports from the region witnessed a gradual shift. inflows of trade-related FDI. electronics. Asia started to export more of technology-intensive exports like chemicals. trade within Asia increased significantly from 37% of total trade to 54% between 1980 and 2007. Asian firms through their constant innovation and investment in research and development emerged as leaders in production networks and supply chains. The end of the 20th century witnessed the Asian 15 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . it had abundant supply of cheap and productive manpower. regulatory restrictions and competitive trade policy that directly hinders the interpretation of a truly “free” trade agreement. Market driven expansion of trade and FDI along with innovation and learning by Asian firms have enabled them to acquire requisite technological capabilities to either compete internationally or become suppliers to MNCs over time. Intra-regional trade also flourished as regional trade barriers and logistics costs fell and production found way to more cost-effective locations. this kind of dislocation can cause considerable hardship to the affected workers. and automobiles. the elimination of tariffs in the home country increases the probability of this occurrence and can cause considerable harm to domestic industries that can be driven out of business altogether. This may lead to excessive dependence on foreign supplies for a number of commodities – a situation that could have adverse effects if there were a disruption in any of the foreign supplies. Dumping: Dumping refers to the practice of a foreign country selling its product in the home market at a price that is lower than its “fair value”. A thriving world economy hungry for labor-intensive imports from Asia.  Excessive Dependence: Free trade can result in the shutting down of a number of industries that are unable to compete with cheaper imports. declining tariffs in developed country markets. While this can occur even in the presence of trade barriers. In the short run. What makes this assessment difficult for an FTA such as the India-ASEAN one is the fact that the “market” in which such an FTA is being implemented is fraught with policy guidelines.  Unemployment: The reduction of tariff barriers leads to greater competition in the domestic market for the imported product leading to loss of market share and laying off of workers in that sector. From exporters of labor intensive products like textiles. As per ADB estimates. The net effect of an FTA will therefore be driven by the benefits and the possible negative impacts arising from them. and footwear. garments. and generous foreign aid flows acted as the key driver of outward-oriented growth in Asia. Though the continent lacked large reserves of natural resources and was steeped in high levels of poverty. As firms underwent systematic innovation and learning. high-income economy of Japan with MNCs in the lookout for low cost production locations proved to be a boon for Asia. ships.

110 are under negotiation.1: No of FTAs in in various Asian countries (as of 2010) UNDER NEGOTIATION Framework Agreement Signed/Under Negotiation 1 4 2 5 3 4 CONCLUDED In Effect 18 11 6 6 10 11 Country Proposed Under Negotiation 9 7 8 3 3 3 TOTAL Signed Singapore India Korea.crisis (1997) and this significantly changed the outlook of outward orientation in the region. The Asian Financial Crisis of 1997-98 wrecked havoc among the economies of Thailand. Table 3. But this long standing policy stance of pursuing trade through the frameworks of APEC and WTO has witnessed a change over the past decade. 3. FDI flows and finance as a result of multilateral and unilateral trade liberalization processes has deepened the economic ties in the Asian region.3 FTAs in Asia Market driven forces of cross border trade. The last twenty years have witnessed an upsurge of bilateral and multilateral trade agreements being convened in this part of the world. of which 119 are ones that have been proposed. For several decades the Asian economies had structured their approach to international trade on the multilateralism and most favored nations (MFN) principles through the General Agreement on Tariffs and Trade (GATT)/WTO framework and open regionalism and unilateral liberalization centered on APEC. and the Republic of Korea (hereafter Korea) and adversely affected the economies of Philippines. Malaysia. Hong Kong and China. Asia is at the forefront of FTA activity. regional (ASEAN+3 or ASEAN+6). and 277 that have been already concluded. Several groups have been to set up to facilitate the process. The region is pursuing a three-track approach based on global (WTO-based) cum transregional (APEC-based). Republic of Pakistan China. People's Republic of Thailand 4 11 10 10 8 6 3 0 1 2 1 0 35 33 27 26 25 24 16 . At present there are a total of 506 FTAs in various stages of negotiation in the region of Asia. and bilateral liberalization of trade. The crisis led to the emergence of sentiments of „economic regionalism‟ in East Asia and a number of economies have come together in the post crisis era to undertake initiatives for regional economic surveillance and close economic collaboration. Out of the 277 concluded FTAs 231 are already under effect. Indonesia.

Philippines. China has separate agreements with ASEAN for goods and services and is in the process of negotiating a third one for investments. Singapore leads the region with a total of 35 FTAs followed by India and Korea. The four major factors that have played a driving force behind the emergence of FTAs in East Asia have been:  The deepening of market-driven economic integration . India. 17 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . India and China too have been active in the FTA scenario in a bid to ensure market access for their goods and services. India has a goods FTA with ASEAN (which is the focus for this paper). Weak infrastructural capacity and low resources could be a reason why these countries have not been able to conduct negotiations on their own. and Indonesia have by and large relied on the ASEAN to convene trade agreements with the larger economies . The relatively poorer economies such as Cambodia. including the United States (US) and Australia. The USSingapore FTA which has been effective since 2004 was the first such agreement made by US in Asia and is supposed to be a model agreement in terms of scope. world class infrastructure and logistics is the regional head quarter for a number of top MNCs in the world. All of these countries are members of ASEAN. Singapore has trade agreements with all the major Asian economies like PRC. Lao People‟s Democratic Republic (Lao PDR). and Korea as well as economies outside the region.Asian policymakers have realized the potential of FTAs in reducing trade barriers. Japan. Singapore with its strategic location. and is trying to negotiate a service agreement. One of the founding members of ASEAN.Japan Australia Malaysia Indonesia New Zealand Brunei Darussalam Viet Nam Philippines Lao PDR Kazakhstan Myanmar Cambodia 6 6 3 7 4 4 3 4 2 2 2 2 0 2 1 1 1 1 1 0 0 1 1 0 5 5 5 1 3 1 2 1 1 0 1 1 0 0 2 1 2 0 0 0 0 3 0 0 11 8 8 7 7 8 7 7 8 5 6 6 22 21 19 17 17 14 13 12 11 11 10 9 Source: Asian Regional Integration Centre website The table exhibits the status of FTAs signed by the top 15 countries (in respect of maximum number of total FTAs) and all the ASEAN countries. Japan and Korea – the two major Asian economies have also been active in forging trade treaties with other Asian economies with a total of 22 and 27 treaties respectively under their belts. Viet Nam.

The WTO Doha Development Round commenced on November 2001 as an initiative to promote trade-led growth in developing countries.harmonizing rules. the slow progress in the WTO/Doha round and the APEC process has prompted the regional economies to come together themselves and form trade agreements that are mutually beneficial to their circumstances. The number of FTAs is easy to track. and South America have proven beneficial to the participating economies. With the dim prospect of a finalized trade agreement. Fear of exclusion has also prompted many nations to join the FTA bandwagon. yet bold assumption that that all goods trade is covered by concluded 18 . Also. standards and regulations and the long term economic benefits that these can bring in and have embarked on a mission to foster greater economic integration in the region through trade pacts. The fear that the two trading giants.The financial crisis of 1997-98 that rocked the economies of East Asia has been an eye-opener to the fact that the region needs to strengthen regional economic cooperation in order to sustain economic growth along with stability.  Slow progress of the WTO DOHA negotiations . the crisis became a lesson for all emerging Asian economies and triggered a need among the east Asian economies to strengthen their regional economic cooperation to ensure sustainable growth and stability in the region.  The Asian financial crisis . pro-business Asian economies started to initiate bilateral and multilateral trade treaties among themselves to further talks on liberalization of trade in goods and services. After seven years of negotiations. Official statistics on utilization rates of FTA preferences for Asia are not easily available and published data on the direction of services trade do not exist. the EU and the US. talks were suspended over the growing concerns that there weren‟t appropriate safeguard measures to protect poor farmers in the developing nations from the rising food and oil prices. might become more dominant and influential in rule-setting in the global trading arena and thus marginalizing Asian economies has been a major impetus for the regional leaders to come forward to step up initiatives of regional cooperation and integration. The negotiations were primarily centered on two key areas: agriculture and non-agricultural market access.The successes of initiatives for economic integration in Europe and the Americas have proved to be a strong motivation for the region to move towards regional economic cooperation and integration. How much of a country‟s trade is covered by the FTA is difficult to calculate owing to the exceptions and exclusions contained in many trade agreements. Though it adversely affected the east Asian Economies only. but the numbers in themselves fail to indicate how important FTA s are to trade and economy at the national level.  The success of European and North American economic integration initiatives . by making a simplistic. A paper by ADB attempts to form an indicative estimate of this. The successful launch of an economic and monetary union by the euro area countries and the expansion of EU to further east as well as the success of NAFTA and the Free Trade Area of the Americas (FTAA) in North Central.

Korea. Japan have a smaller share compared to the ASEAN member states. and new business opportunities for partner economies. Graph 3.4 Challenges Posed by FTAs in Asia ADB has pinpointed some challenges confronting FTAs in Asia. market access. This is an indication of the increasing number of FTAs and their importance in total trade in the economies of the region. They have made their own study and surveys to come to the conclusions that are summarized below. India 23% and Japan 11%. In fact studies have shown that FTA preference 2 2 This section has been compiled mainly from the working paper by Asian Development bank on FTAs in Asia. This implies that ASEAN members rely more on FTAs for their trade compared to other nations.FTAs and computes the share of an economy‟s bilateral trade with its FTA partners in its total trade with the world for 2000 and 2008. China Indonesia Source : ‘Asian FTAs: Trends and Challenges’ by Masahiro Kawai and Ganeshan Wignaraja The larger economies of the region like India. 3.1: Share of an economy’s bilateral trade with its FTA partners 80 70 60 50 40 30 20 10 0 Brunei Darussalam 2000 2008 Myanmar Lao PDR Korea Singapore Thailand China Malaysia Cambodia Hong Kong. Korea has 44% of its total trade with bilateral FTA partners. China 25%. Another point to note is that for all the nations. China. 19 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper Philippines Vietnam Japan India . the share of trade with bilateral FTA partners out of its total trade has increased over the eight year period considered.  Low utilization of rates of FTA: A free trade agreement bestows numerous benefits like preferential tariffs. To automatically assume that such benefits are exploited or enjoyed by the individual industries and firms would be grossly inaccurate.

World Bank 2007 Bhagwati 2008 4 20 . Lack of awareness by the firms in member countries were found to be one of the major reasons behind this low utilization of FTA‟s. For manufactured goods. which requires a specific production process for an item. which have less ability to meet such costs. and (iii) a specific process rule. Government and Industry bodies could play an important role in making FTAs more transparent to industries .utilization rates (estimated by shares of export value enjoying preferences ) is low in Asia. a transparent regime. 3 3 Baldwin 2006.  Coverage of Agricultural Goods in FTA: Another potential problem with Asian FTAs is the suboptimal level of liberalization in agricultural products.  Rules of Origin (ROO): Rules of origin are used to determine the country of origin of a product for purposes of international trade.  Thus an important policy implication arising out of the above problem is to raise awareness about FTAs and their various benefits and clauses to firms and industries at a micro level. and has now come to be known as the “noodle bowl” effect in Asia.which might not have the relevant information or the capacity to decode the scope of FTAs. They are used to determine which goods will enjoy preferential tariffs to prevent trade deflection among FTA members. (ii) a local (or regional) value content rule. Agricultural goods have been largely excluded in coverage owing to the pressures from the farm lobbies and social concerns in the rural sectors. Multiple ROOs in overlapping FTAs could pose a severe burden on SMEs. The coverage of the goods in the Asian FTAs differs from agreement to agreement.especially small and medium scale industries . It has been argued that Asian FTAs have complicated ROOs and this deters the use of FTA preferences and raises transaction costs for firms. in reality they are underutilized. A realistic tariff elimination schedule. The direct implication is that the full benefit of free trade is not being actualized and it is ultimately a waste of scarce resources used in negotiating trade treaties in developing 4 countries . This implies that although a number of FTAs have been concluded in the region. ROOs comprise three types: (i) a change in tariff classification rule defined at a detailed harmonized system level. This problem was originally termed a “spaghetti bowl” of trade deals (Bhagwati 1995). Another group of analysts have argued that the Asian FTAs could be actually creating a new order by building the foundation for a stronger regional trading system (Petri 2008). This can be achieved by adopting a negative list approach to agricultural products with a few sensitive items. which requires a product to satisfy a minimum local (or regional) value in the country (or region) of an FTA. it is important for FTAs in the region to ensure coverage of at least 85% of all agricultural product lines in a given agreement and minimize exclusions to not more than 150 product lines. and reform of subsidies are issues that need to be further addressed under FTAs. where poverty looms large. According to the ADB report.

and the quality of institutional support could explain the differences in perceptions of ROOs across Asian countries.Singaporean firms had the most negative perceptions regarding multiple ROOs (38%). while Korean firms had the least negative perceptions (15%). Negative responses for Japanese. only 27% said that multiple ROOs significantly add to business costs. ADB conducted a firm level survey to find enterprise perceptions of whether FTAs would increase cost of conducting business when dealing with multiple ROOs in the region. it is possible that multiple ROOs could pose as a problem and thus policymakers need to take precautionary steps towards that. in future.  The survey also revealed. Evidence suggested that multiple ROOs impose limited burden on firms in East Asia. and Thai firms were 31%. as the number of FTAs increase. But there were country-level variations in perceptions . industrial structures. that larger firms in Asia had more negative perceptions of multiple ROOs than SMEs. 28%. Smaller firms usually export to a single market and thus probably are not that affected by the complex ROOs. rather unexpectedly. 21 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . respectively. and 26%. National FTA strategies. Of the 465 firms that responded to the question on this issue. Philippine. A possible reason for this was large established firms tend to export to multiple markets and change their business plans in response to FTAs and are thus more likely to complain about issues of multiple ROOs.  Though ROOS are not perceived as a burden by firms at the moment.

Growths of income and demand in the emerging markets.M.4. Feenstra. and R. 2010 6 A. and  Attracting Foreign Investments.  Self-selection of firms with only the efficient firms surviving after trade liberalization. Chile-Mexico FTA. Given below is the empirical evidence about the aforementioned gains that has been analyzed with respect to trade liberalization programs such as Canada-US 5 FTA. Benefits from FTA’s and the Empirical Evidence The following gains from trade are predicted by economic theory:  Economic growth. However. and „Trade as a driver of Prosperity‟ – Commission staff working document. Empirical research supports the fact that opening trade increases growth in both 6 developed and developing countries . Wooster. December 2006. Dube and T. it is also true that the existence of good institutions and efficient regulatory systems are a prerequisite to attract FDI and trade-led growth. 114.  Employment and wage effects associated with greater trade.  Fall in prices after tariff reductions due to increased economies of scale as well as greater competition between firms. Banda (2006) "The contribution of intra-regional and extra-regional trade to growth: evidence from the EU" 22 .  An increase in the variety of products available to consumers. S. Economic Journal. Winters "Trade liberalization and economic performance: an overview". improvement in economic policies and investment climate in these markets have been a major driver of trade besides trade policy and tariff reduction. Review of World Economics/Weltwirtschaftliches Archive. A general consensus seems to have been emerging 5 Excerpted from Robert C.1 Economic Growth Global Trade (merchandise trade) has grown at a rapid pace of 73% in the last decade from 1999 to 2009. 2004. “New Evidence On The Gains From Trade”. European Commission. European Economic Integration and others 4.

Moreover. other factors such as population growth. U. 8 N. empirical estimates also reveal that opening of trade increases productivity and increases competiveness of the EU industries with estimates suggesting that between 1988 to 2000. 2004. L. employment and incomes when it is successfully combined with other structural reform 7 measures . productivity in manufacturing sector in the EU region increased by 11% while mark-ups came down by 1.S. 9 Steven Zahniser and John Link (editors) “Effects of North American Free Trade Agreement on Agriculture and the Rural Economy” (July 2002) 10 Lee Hudson Teslik “NAFTA's Economic Impact” Backgrounder. Between 1993 and 2000. agricultural imports from Canada and Mexico increased 86 percent between 1993 and 2000. This is particularly true for products whose trade was severely restricted prior to CFTA and NAFTA. Mexico. and the United States have broadened substantially since NAFTA's implementation. With respect to the European Union. Trade Representative (USTR). Chang.over the last few years that trade opening works best for growth. though experts disagree over the 10 extent to which this expansion is a direct result of the deal . and unusual weather patterns . However. Council on Foreign Relations (July 2009) 23 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .S. NAFTA has had a much larger impact. Productivity growth aid economic growth as well as consumer welfare and therefore gains in productivity have second rung effects of increasing economic growth. 4695.generally have had a much stronger effect on U. U. agricultural trade with its partners in the agreement has increased in both size and relative importance. However. Kaltani. existing FTA‟s are argued to have an impact on increasing EU GDP by 2%. CEPR Discussion Paper Series No. a commodity-by-commodity analysis provides that for a handful of commodities. Journal of Development Economics 90 (2009) 33–49.S agricultural trade with Canada and Mexico than NAFTA. Globalization and the Decline of Inflation”.S. the United States' chief 9 7 R. Further increased cooperation with existing trade partners. “Competition. J. changes in macroeconomic performance and exchange rates. Another study suggests that since North American Free Trade Agreement (NAFTA)‟s implementation in January 1994. V. agricultural imports from the rest of the world. Scott.S.S. compared with 42 percent for U. Chen. Imbs and A. Loayza (2009) "Openness can be good for growth: The role of policy complementarities". agricultural exports to Canada and Mexico expanded by 59 percent. According to data from the office of the U. N. Similarly. with an increase in trade volume of 15 percent or more that is directly attributable to the agreement. while corresponding exports to the rest of the world grew only 10 percent. particularly lowering of non tariff barriers could double this growth effect.6% in the face of 8 increased imports during the period . U. Trade relations among Canada.

negotiator in foreign trade and a major booster of NAFTA and other free trade accords, the overall value of intra-North American trade has more than tripled since the agreement's inception. The USTR adds that regional business investment in the United States rose 117 percent between 1993 and 2007, as compared to a 45 percent rise in the fourteen years prior. Trade with NAFTA partners now accounts for more than 80 percent of Canadian and Mexican trade, and more than a third of U.S. trade.

4.2 Price Reductions
Gains through increase in economies of scale There is inadequate empirical support that trade liberalization resulted in expanded scale of operations for domestic firms/industries (in FTA member countries) resulting in economies of scale and subsequent price reductions. Gains through reduction of barriers and increased competition Another mechanism through which free trade areas can lead to a reduction in prices, aside from economies of scale, is through the elimination of rules and regulations governing the flow of goods between FTA member countries. For the European Union, as these non-tariff barriers were eliminated, it was expected that firms would be forced to equalize their selling prices across markets. In other words, rather than treating Europe as a collection of segmented markets, where firms could choose their prices in each country separately, Europe would instead become a unified market where firms could not price-discriminate. As pricediscrimination is eliminated, average prices are expected to fall, providing benefits to consumers. In practice the results look mixed for the EU. A paper by Badinger (2006) uses sectoral data from 1981 to 1999 and finds evidence of markup reductions in manufacturing and construction, but not in services. The European Commission Report argues that tariff cut leads to lower consumer prices although the pass-through effect of this price transmission channel is 12 usually imperfect. The paper cites the example of how import prices for textiles and clothing fell by 27.5 and 38.4 percent respectively in real terms (i.e. relative to the general CPI) during the period 1996-2006. Import prices for consumer electronics too exhibited a 50% reduction. The paper further explains the macroeconomic spill-over effects of reduction in import prices that led to overall reduction in inflation as a result of trade openness and increased international
11

11

Badinger, H. (2006) “Has the EU‟s Single Market Programme fostered competition?

Testing for a decrease in markup ratios in EU industries,” Oxford Bulletin of Economics and Statistics, forthcoming.
12

J. Francois, M. Manchin, and H. Norberg, "Passing on of the benefits of trade openness

to consumers", European Commission, Directorate General for Trade, 2007, p.7.

24

competition. There exists theoretical literature on the negative relationship between inflation and trade openness13. The inflation-trade openness correlation has become even more strengthened during the 1990s and has become more robust than earlier research suggested extending even to OECD countries.

4.3 Gains from product variety
In addition to reduction in prices, trade liberalization generates gains for the customers also through an increase in the variety of goods available through trade. Economists have estimated that in a typical country, new import varieties account for 15 percent of productivity growth. For the developing countries, they estimate the median impact of new imported varieties to be as high as 25 percent of national productivity growth. By combining the data on imports from new supplying countries with estimates of 14 the elasticity of substitution for each, Broda and Weinstein (2006) come away with an estimate of the gains from trade for the US due to the expansion of import varieties, which amount to 2.6 percent of GDP in 2001. Translating these "variety gains" into an EU context suggests that the average European consumer benefits are in the range of 600 € per year, in addition to the gains due to 15 lower prices .

4.4 The Survival of More Productive Firms
Economic models predict that opening of trade in a sector will bid up the wage and other factor prices, which forces the least efficient firms to exit the market leading to an increase in the average productivity of the firms in that sector. A study by Trefler (2004) analysed the impact of the Canada-US free trade agreement on the selection and productivity of firms using firm-level data. He found that Canadian industries that had relied on tariffs to survive saw their employment fall by 12 percent due to the elimination of tariffs. In manufacturing overall, the trade agreement reduced employment by 5 percent. However, these job losses were a short-term effect, and over a 10 year period, employment in Canadian manufacturing did not drop. While low-productivity plants shut down,
16

13

W.C. Gruben. and D. McLeod, “The Openness- Inflation Puzzle Revisited”, Applied

Economics Letters, 11,2004, pp.465-468.
14

Broda, C. and D. E. Weinstein (2006) “Globalization and the Gains from Variety,”

Quarterly Journal of Economics, May, 121(2), 541-585.
15

"The gains from variety in the European Union" - Munich Discussion Paper No. 2010-

24) and Langenfeld and Nieberding - "The Benefits of Free Trade to U.S.Consumers", Business Economics, 40 (3), 2005, p. 41-51.
16

Trefler, D. (2004) “The Long and Short of the Canada-U.S. Free Trade Agreement,”

American Economic Review, 94(4), September, 870-895.

25 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper

high-productivity Canadian manufacturers expanded into the United States. Third, the trade agreement set off a productivity boom. Formerly sheltered Canadian companies began to compete with, and compare themselves to, more efficient American businesses. In the formerly sheltered industries most affected by the tariff cuts, labor productivity jumped 15 percent, at least half from closing inefficient plants. That corresponds to a compound annual growth rate of 1.9 percent in productivity. To summarize, Trefler finds overwhelming evidence that the Canada-US free trade agreement resulted in the self-selection of Canadian firms, with only the more productive firms surviving. Productivity in Canadian manufacturing overall rose 6 percent. This productivity gain translates directly into higher wages or lower prices, and is a gain from trade for consumers. The gains for developing countries are also shown to be substantial. Feenstra 17 and Kee, (2006) completed a study of 44 countries over two decades, 1980 – 2000. Over this period, export variety of these countries to the United States increases by 4.6 percent per year, thus more than doubling over these two decades. Furthermore, that increase in export variety is associated with a 4.5 percent productivity improvement for exporters over the two decades. These gains for the exporters are actually larger than the gains to the United States (of 2.6 percent) from the increase in its import variety over the past several decades.

4.5 Trade and Employment
At a theoretical level, trade openness creates new jobs while protectionism reduces competitiveness of industries and thus destroys jobs. A report by European commission finds a negative correlation between openness in trade and unemployment. There persists a general misconception that trade opening destroys jobs, and only exports create jobs. While this might hold true for certain individual firms the reverse is true at the level of the entire economy. Trade openness facilitates the integration of local companies in global production chains. It makes them more productive and competitive, and creates more employment. Steven Zahniser and John Link (2002) , while discussing about NAFTA and Agricultural Employment, state that by increasing opportunities for U.S. exports and encouraging the more efficient allocation of economic resources, NAFTA has had a small, positive influence on U.S. agricultural employment. Moreover, an
18

Feenstra, R. C. and H. L. Kee (2006) “Export Variety and Country Productivity: Estimating the Monopolistic Competition Model with Endogenous Productivity,” University of California, Davis and World Bank Policy Research Group.
17

18

Steven Zahniser and John Link (editors) “Effects of North American Free Trade Agreement on Agriculture and the Rural Economy” (July 2002) 26

Lamo (2010) "Changes in the Wage Structure in EU Countries". 1199. April 2010. A.000 European firms shows that import competition led to both within-firm technology upgrading and between-firm reallocation of employment towards technologically more advanced firms or subsidiaries. 20 Nicholas Bloom. 23 "The Growth of Low-Skill Service Jobs and the Polarization of the U. Another recent study finds that technological change and 21 globalization are associated with wage increases in nine EU Member States . These effects account for about 15-20% of technology upgrading between 2000 and 2007 and are growing 20 over time . J. Trade may also have created a "polarization" of employment in recent years. FTAs may attract further foreign investments in a country. For instance. John Van Reenen (2009): "Trade induced technical change? The impact of Chinese imports on innovation. In summary. Stanford university working paper. Jimeno. with increased trade and openness. 21 R.S.6 Attracting Foreign Investments: With an inclusion of certain favourable rules for the foreign investors. F. a study drawing on a panel of over 200. Christopoulou. According to Steven Zahniser and 19 OECD (2007) "Trade and labor market adjustments".OECD study finds that while there has been no decline in overall employment. despite a considerable degree of labor churning and declining job security. This phenomenon is not unique to EU and also has been observed 23 in US. Salomons (2009) "Job polarization in Europe". Mirko Draca. May 2007. the developed countries have experienced a noticeable decline in manufacturing employment mostly due to rapid technological progress but the decline has been more than compensated by an increase in services employment. Paul Krugman (2008) "Trade and wages reconsidered". 19 4. A. Labor Market". August 2010. whereas there was a decline in medium-skilled jobs in manufacturing and routine office 22 jobs . Manning. ECB Working Paper No. American Economic Review. David Autor and David Dorn. A. Employment has been growing both in the high-skilled (professional and managerial) jobs and in the lowest-skilled (personal services) jobs. 22 M. there has definitely been a shift of employment from industries to service sector. diffusion and productivity". document TAD-TC-WP (2007)7. Wages increased for those remaining in manufacturing. Brookings Papers. Trade with low-wage countries can potentially also have a major beneficial impact on technical change. 27 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . 2009 vol 99(2) pp 58-63. Goos. MIT Working Paper.

U. It is further stated that econometric studies demonstrate that NAFTA has fostered a positive synergy between trade and FDI in the North American processed food industry.S.3 billion in 1999. As a result. exports and U. FDI have grown together which is one of NAFTA's success stories. Also.S.8 billion in 1989 to $5. They also guarantee equal treatment to foreign and domestic investors alike under the laws of each NAFTA country and prohibit new laws that would change the status of foreign investments. once they are established.S.0 billion in 1999. under Canada-U. U. reaching $5. U.John Link (2002)24. Similarly.S. such rules generally strengthen the rights of foreign investors to retain profits and returns from their initial investments. direct investment in the Mexican food processing industry has more than doubled since NAFTA's implementation.S. 24 Steven Zahniser and John Link (editors) “Effects of North American Free Trade Agreement on Agriculture and the Rural Economy” (July 2002) 28 . FDI in the Canadian food processing industry expanded from $1. Free Trade Agreement (CFTA) and NAFTA.

For certain individual economies of ASEAN this figure goes up to as high as 282. while for ASEAN the figure stands at 102.2% (Singapore). Moreover. Economic Impact of IndiaASEAN FTA This section provides an analysis of the impact of the India-ASEAN FTA on the Indian economy in general and certain select industries in particular. The summary of the key terms and conditions of the India-ASEAN FTA is provided in Appendix 1 of this report. We then present . Japan and EU(27) are the top import sources.58 million economy with a total population of approximately 1. negotiation for two FTAs with Japan and Malaysia were recently concluded and another FTA with Thailand is being discussed. intra-ASEAN trade comprises of 24. We first outline the trends in the bilateral export and import growth rates as well as the import and export shares from India‟s perspective. the ASEAN region is highly involved in intra-industry trade.809.through the calculation of various indices such as the Trade Intensity index. The numbers above indicate that there is substantial opportunity for Indian businesses to improve and expand its trading relations within the ASEAN. the Regional Hirschman index. Total trade (exports and imports) as a percentage of GDP for India stands at 45.5 %.5. India is ASEAN‟s ninth largest export destination (comprising th 3% of total ASEAN exports) and the 10 largest import source (comprising 3% of total ASEAN exports).8 billion.USA and China are the biggest export destination for ASEAN and China. EU(27). On an aggregate level. 145 % (Malaysia) 130% (Vietnam) and 108.84%. we provide an outline of the current profile of the international trade between India and ASEAN at an aggregate level. 5. India is one of the largest economies of the Asian region and the ASEAN countries together have become both prominent and influential in Asia owing to their increased importance in trade and commerce.1 India ASEAN Trade and Impact of FTA on the Economy In this section.5% of the total trade of the region. 29 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . An inspection of its top trading partners reveal that ASEAN is the biggest trading partner for the ASEAN region both in export and import categories. India already has an effective bilateral FTA with Singapore. The economies of ASEAN and India together comprise a $ 2.3%(Thailand).

when a number of East Asian economies. The export growth variable plots the year-on-year growth of India‟s exports to ASEAN over the period of the analysis. There has also been a gradual increase in the share of ASEAN region in India‟s total exports as depicted by a gradual rise in the export share variable. once the adverse effects of the East Asian crisis subsided. and Export share (%) over a period of eighteen years from 1991 to 2008. India‟s exports to the region recovered to pre-crisis levels.org/tid/aptiad/index_trdi1_fm. This could be due to the Asian Economic crisis of 1997-1999. Export Growth (%). The share of the ASEAN market in India‟s total exports has risen from 5.php Please refer to Appendix 2 for definition 30 .68% in 1991 to 10. Graph 5. URL: http://aric.adb. 25 The data for this analysis has been considered from the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP)‟s website.org/index.28% in 2008.1: Patterns observed for Export Growth and Export Share 40 30 20 10 0 -10 -20 -30 -40 Export Growth (%) Linear (Export Growth (%)) Export Share (%) Graph 5. including Thailand.and the Complementarity index .India-ASEAN trade relations in the context of 25 India‟s trade patterns with other major economies such as US and China .aspx and from Asia Regional Integration Center‟s (ARIC: an affiliate of the Asian Development Bank) website. The graph exhibits a steep fall in exports during the years 1997 and 1998. Indonesia. Malaysia and Philippines faced a severe financial crisis. when growth rates became negative. URL: http://www.1 plots the observed patterns of the two variables namely.unescap. However.

2:26 Patterns observed for Import Growth and Import Share 80 60 40 20 0 -20 -40 -60 Import Growth (%) Linear (Import Growth (%)) Import Share (%) On the whole. URL: http://www. over the period 1991 to 2008.php Please refer to Appendix 2 for definition 31 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .aspx and from Asia Regional Integration Center‟s (ARIC: an affiliate of the Asian Development Bank) website.1 Export Intensity & Trade Intensity Indices The export and trade intensity indices provide us with an indication of the intensity of the trade relationship between two countries/regions. there has been no erosion in the share of imports from ASEAN in India‟s total imports.82% in 1991 to 8. ASEAN‟s import share out of India‟s total imports has increased from 4. ASEAN‟s share in India‟s total trade has increased to 9. The numerator is the share of the destination of interest in the 26 The data for this analysis has been considered from the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP)‟s website.unescap. the share of India‟s total trade with ASEAN has shown a steady increase over the period of the analysis. It is defined as the ratio of two export shares.org/index. URL: http://aric.88% in 2008. Graph 5.adb. The export intensity index indicates whether or not a country exports more (as a percentage) to a destination than the world does on an average.With respect to imports.1. though the growth of ASEAN‟s exports to India has been more volatile than the growth of India‟s exports to ASEAN.42% in 2009 growing by 80% since 1991. 5.org/tid/aptiad/index_trdi1_fm.

The plot. for a majority of the period under consideration.00 1. „India‟s Export Intensity with ASEAN‟ indicates whether India exports more (as a percentage) to ASEAN than the world does while „ASEAN‟s Export Intensity with India‟ indicates whether ASEAN exports more to India (as a percent) than the world does.exports of the region under study (the source country) while the denominator is the share of the destination of interest in the exports of the world as a whole. ASEAN 27 Data has been considered from the ARIC website where in the source has been given as „IMF Directions of Trade Statistics‟.3: Export Intensity Indices 27 2.50 2. The trade intensity index is the ratio of the total trade share of a country/region to the share of world trade with a partner. Thus. Both the indices take values between 0 and +∞ and a value greater than 1 for both implies that the source country exports/trades more (as a percentage) to/with a particular destination than the world does on an average.00 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 India's Export Intensity Index with ASEAN ASEAN's Export Intensity Index with India Graph 5. Please refer to the Appendix 2-Technical Appendix for a detailed description of the index along with an illustration. as opposed to export intensity index. Moreover. Graph 5.00 0. An index of more than one indicates that trade flow between countries/regions is larger than expected given their importance in world trade.50 0. the index value was greater than 1 indicating that both the economies export more to each other than the world does to each of them on an average. 32 . for both the regions.50 1.3 plots the export intensity indices from both India‟s as well as ASEAN‟s perspective from 1990 to 2008. As we can observe. this index also accounts for the import flows between the trade partners.

33 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .00 India's Trade Intensity Index with ASEAN ASEAN's Trade Intensity Index with India 5.00 1. We can also infer from this plot that in the total bilateral trade. An increase in the value of the index over time implies that the country‟s exports to another region/country are becoming 28 Data has been considered from the ARIC website where in the source has been given as „IMF Directions of Trade Statistics‟ Please refer to the Appendix 2-technical appendix for a detailed description of the index along with an illustration.50 1.40 1. Graph 5.1.30 1. It tells us the degree to which a region or country‟s exports are dispersed across different economic activities. India and ASEAN have also enjoyed an intense overall trade relationship with each other throughout the period.60 1. This can be seen from the figure below where the plot of the overall trade intensity for both the economies indicates that the index value for the overall trade intensity also never fell below 1. ASEAN‟s trade relationship with India has been more intense than the other way round.80 1.2 Sectorial Hirschman The Sectorial Hirschmann index is a measure of the sectorial concentration of a region/country‟s exports. High concentration levels can be interpreted as an indication of vulnerability to economic changes in a small number of product markets. the gap seems to be reducing in the recent period.seems to be exporting more to India (as a percent) than vice-versa although the gap has reduced in the later years. Thus the implementation of the FTA between the two economies can only be expected to intensify the trade dependence amongst each other. although as in the case of the export intensity.20 1.10 1.4:28 Trade Intensity Indices 2. throughout the period under consideration.70 1.90 1.

31 According data available with the Ministry of Commerce and Industry.3 0.5 plots the Sectorial Hirschmann index for India‟s exports to major economies such as China and the USA.5 0. Graph 5. The rise with respect to ASEAN‟s index can be explained by an increase in the concentration of India‟s exports to the region towards mineral fuels and mineral 31 oils . Graph 5. the fact that India‟s exports to China are more concentrated in mineral ores such as iron ore is borne out by a higher Sectorial Hirschmann index than the other regions. it does not include other major Asia Pacific economies such as Japan. South Korea. ASEAN. Trade data for the European Union is not separately available with the UNESCAP. the share of the HS Code 26.1 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 India ASEAN India China India World (other countries) India USA The index is defined as the square root of the squared shares of each industry in 30 the total exports of a country to a particular region/country. this share increased to around 57%. 34 . The index takes a value between 0 and 1 with higher values indicating that exports are concentrated in fewer sectors. 30 Please refer to the Appendix 2-technical appendix for a detailed description of the index along with an illustration. by 2007-08. Australia in addition to other small economies. 29 „World (other countries)‟ is as per UNESCAP‟s classification and apart from India. SLAG AND ASH” in India‟s total exports to China was around 19% in 2000-01.concentrated in a few product products rather than spreading across a broad range of product profile.5: Sectorial Hirschmann index for India’s exports29 Sectoral Hirschmann Index 0. Government of India.4 0. The index with respect to exports to ASEAN has also witnessed a sharp increase after 2003 at around the same time as the one with respect to China has risen.2 0. China and USA. India‟s exports to the USA have become broader based over the past few years. As we can see from the plot.6 0. “ORES.

632: Complementarity Index 80 70 60 50 40 30 20 10 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Complementarity of ASEAN's exports to India Complementarity of Indian exports to ASEAN Linear (Complementarity of ASEAN's exports to India) Linear (Complementarity of Indian exports to ASEAN) . by 2007-08. Complementarity of Indian Similarly. MINERAL OILS AND PRODUCTS OF THEIR DISTILLATION. Graph 5. 33 divided by two. 35 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . The figures on the vertical axis are in percentage terms. MINERAL WAXES” in India‟s total exports to ASEAN was around 0.3 Complementarity index The complementarity index measures the degree to which the export pattern of one country matches the import pattern of another. BITUMINOUS SUBSTANCES. Changes over time may tell us whether the trade profiles are becoming more or less compatible.1. 33 Please refer to the Appendix2 -Technical Appendix for a detailed description of the index.15% in 2000-01.5. this share increased to around 29%. “MINERAL FUELS. It is defined as the sum of the absolute value of the difference between the import category shares and the export shares of the countries under study. though both of them show an increasing trend. A high degree of complementarity is assumed to indicate more favorable prospects for a successful trade arrangement. The index is converted in to percentage form . Complementarity of Indian exports to ASEAN is lower than complementarity of ASEAN‟s exports to India. 32 The data has been considered from the UNESCAP. the share of the HS Code 27.

under the FTA India will specialize in producing and exporting pharmaceutical products whereas the FTA member country will specialize and produce electronic products and export those to India. identifying the comparative advantage by sector will shed some light on the sector specific impact of the India ASEAN FTA. Apparels & Accessories Leather & Leather Accessories Handicrafts & Carpets Gems & Jewellery Machinery and Appliances Automotive sector Renewable & Non-Renewable Energy Power Petroleum & Natural Gas Services     Communications Financial Services Insurance Services Construction These sectors have been selected in consultation with FICCI and the Ministry of Commerce and Industry. Therefore.95% for 2007. Complementarity for ASEAN‟s exports has increased at a much higher pace (116. We now analyse the competitiveness of the exports of some of the key sectors of the Indian and ASEAN economies vis-à-vis other major exporters of the world using the RCA index.org/unsd/cr/registry/regcst. 34 SITC Rev 3 – http://unstats. one outcome of a free trade arrangement is that the sector in which a country has a comparative advantage in production will benefit from free trade. if India has a comparative advantage in manufacturing pharmaceutical products (say) relative to the other ASEAN countries. Rev.04%) compared to that of the complementarity of Indian exports to the ASEAN market (38%).1: List of Commodities and Services Merchandise            Chemicals and Pharmaceuticals Electrical Equipments Textiles. whereas the complementarity of ASEAN‟s exports to India was 69. In other words.2 Impact of FTA on Indian Industries Based on Revealed Comparative Advantage As discussed earlier. owing to the format in which international trade statistics is organized in the website of Standard International 34 Trade Classification. 5.1%.3 (SITC) . and the FTA member country has a comparative advantage in manufacturing electronic products. Government of India. The sectors that have considered for the analysis include the following: Table 5. In our analysis certain sectors have been clubbed together under a single head.exports stood at 52.asp?Cl=14 36 .un.

50 6.84 8.29 134.59 1.74 6.61 4.63 Appendix 3 gives the details of subsectors considered under each sector 35 There is no trade in generated energy for India.The following table outlines the export of India and ASEAN in the sectors.91 17.77 13.71 1133.72 2032. 2009 (Billlion $) 18.78 6.13 6. Apparels and Accessories Automotive Sector 425.83 17.20 Chemical and Pharmaceuticals Medicinal and pharmaceutical products Handicrafts and Carpets Textiles.64 14.62 10.91 2.87 Electrical Equipments Energy and 35 resources: Power Renewable and Non-renewable Petroleum and natural gas 982.04 0.29 3.29 ASEAN's Commodity Export.44 46.30 1.55 682. 2009 ( Billlion $) 1433. Table 5.82 80.17 ASEAN’s share of world exports % 4.82 22.13 5.33 580.31 Commodity India's Commodity Export. This is why this sector has been considered under the head of Merchandise 37 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .90 38. 2009 (Billlion $) 60.89 Machinery and Appliances 3479.78 0.99 32.51 308.52 India’s share of world exports % 1. only fuels are traded.03 26.73 8.06 5. Apparels and Accessories Leather and Leather accessories Handicrafts and Carpets Textiles.10 0.19 37.2: India and ASEAN’s export and percentage share of world export (2009) World's Commodity Export.39 6.92 1.42 144.

Generic drug production is critical to India‟s pharmaceutical sector‟s success. Department of Pharmaceuticals. apart from providing one of the basic necessities of life. The sector has witnessed a sharp increase in exports.2.5% in the world.nic. and http://nppaindia. According to data published by Department of Industrial Policy and Promotion (DIPP).7% of the total exports. 38 . Japan.526 crores in 1998-99 to Rs 39821 crores in 2008-09.from Rs 6.2. of India. Apparels and Accessories. and Leather and leather Accessories 5. Annual Report 2009-10 – Ministry of Textiles.825. Economist Intelligence Unit.500 crores in 1980 to approximately Rs 1. in 2009 the country exported pharmaceuticals and chemicals exports from the country has represented a 12. Handicrafts and carpets. Govt. Most exports are of generics and bulk drugs directed to more than 200 countries including US. Sector for Textiles.2 Textiles. has a strong presence in the Indian economy. Ministry of Chemicals and Fertilizers. It works independently right from 36 Sources: Annual report 2009-10. Australia and members of the European Union.1 Overview of the Sectors Pharmaceutical Sector 36 India‟s pharmaceutical sector is now the third largest in the world in terms of the volume with a share of 10% in the world production and is the fourteenth largest in terms of value accounting for a share of 1.6% increase on the previous year and accounted for 4.43 million between April 2000 and September 2010. India Brand Equity Foundation. ICRA rating feature: Indian Pharmaceutical Industry.611 crores in 2009-10 (up to September 2009).000 crores in 2008-09. The country‟s pharmaceutical industry had a turnover of Rs 1.in 37 Industry Monitor: Textile and Garments – Cygnus.000 crores in 2003-04 to Rs 55. According to Centre of Monitoring Indian economy. The domestic pharma sector on the other hand. the drugs and pharmaceuticals sector has attracted FDI worth US$ 1.5. Domestic pharmaceutical companies have thrived by using their low labour and research costs to export generic drugs to developed countries. Apparels and Accessories37 Indian textile industry. About 40% of the domestic pharmaceutical market in India is comprised of 74 bulk drugs and their formulations. has grown from Rs 32. India is also considered to be having the second largest number of US Food and Drug Administration approved manufacturing facilities after the USA. India currently tops in the export of generic medicines with export of drugs worth about US$ 11 billion.00.

the demand has remained strong. sophisticated and highly mechanized mill sector in on the other hand. on account of lower demand from the major markets like the US and the Europe.procurement of raw materials to production of the actual textile. In addition. The decline in demand from the US and European market hurt this sector the most. The textile industry comprises of the following sub-sectors:  Organized Cotton / Man-Made Fibre Textiles Mill Industry. it started to recover due to increase in demands on occasion of Christmas and New Year.from US$ 10.64% . Indian textile industry is complexly structured with hand-spinning and hand weaving sector on one hand and modern. In the domestic market. increase in input cost and persistent long power cuts led to the downfall of revenues of the industry. improved liquidity and stable growth in export and domestic demand for textile products. and the Confederation of Indian Textile Industries (CITI) anticipates a rise in garment 39 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . of which US$30 billion is exports and the remaining US$55 billion is domestic sales.71% in textile exports during April 2009 March 2010 which fell from US$ 22. Presently the Indian textile and apparel market is worth US$85 billion. between whom the small-scale power loom sector is sandwiched. ASSOCHAM noted a decline of 1. but mainly driven by value. garments exports also from fell by 2. To add to the existing woes. The trend is expected to continue with precautionary measure taken by the leading companies in the industry and with the aid of Government.93 billion in the previous fiscal year to US$ 10. Exports of textile can be broadly classified into:  Fabrics  Apparels  Man-made textiles  Yarn Exports have started to show improvement since November 2009.75 billion in 2009-10. This recovery from the meltdown can be attributed to Government stimulus.64 billion. which has added pressure on the margins.  Man-made Fibre / Filament Yarn Industry  Wool and Woolen Textiles Industry  Sericulture and Silk Textiles Industry  Handlooms  Jute and Jute Textiles Industry  Textiles Exports The textile industry wasn‟t spared by the global meltdown. Even though the industry had to go through a major pitfall.13 billion in 2008-09 to US$ 21.

38 Gems and Jewellery sector is included under this sector. accounting for a cumulative decline of 12. of India.38 crores in the year 2002-03.85 crores at the end of the year 2008-09 from Rs. 40 . Types Of carpets  Woven  Needle felt  Knotted pile  Tufted The export target for 2009-2010 had been fixed at Rs 32. absence of market intelligence. Annual Report 2009-10 – Ministry of Textiles. The export decreased to Rs.12. Industry Monitor: Textile and Garments – Cygnus.960 crores including the carpet industry. The unorganized Handicraft had constraints such as lack of education. Govt.40%. The handicrafts and carpets industry not only provides present set of millions of artisans but also encourage new entrants in the crafts activity. the sector has grown significantly by 3% annually. The following table shows the detail of both handicrafts and carpet industry. A decrease had been observed in the Dec. It also helps the economy in earning substantial foreign exchange.891. Handicrafts and Carpets 38 The Handicrafts and Carpets sector is one of the significant industries and plays a vital in the country‟s economy. The budget outlay for the year 2010-11 was anticipated to be Rs 285 Crore. low capital. 2009 due to appreciation of rupee and economic meltdown.10. Despite all these short comings. Like textile industry. and a poor institutional framework.exports to the US. the handicrafts and carpets industry provides employment to craftsmen both in the rural and urban areas.434. poor exposure to new technologies. the European Union and Japan as a result of improvement in their retail markets.

according to the Carpet Export Promotion Council (CEPC). Indian Leather Industry: Perspective and Export Potential 41 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .62 2005-06 3082.79 2004-05 2583.75 Source: Ministry of Textiles: Annual Report 2009-10 On the other hand the carpet industry grew over 6% to US$53 million.05 17536.85 5536. The leather industry has changed significantly from being just an exporter of raw materials around early 60s and 70s to becoming an exporter of finished leather goods. As a result of these initiatives the India leather industry is one among the top 7 industries that earns foreign exchange for the country. The leather and leather products industry has been one among the oldest manufacturing industries in India. with an annual turnover of US$5 million.73 200910(AprilDec.8 16335.14 20963.47 13555.) 1737. there is still scope for more growth and investment. Leather and Allied Product Manufacturing – ISI Emerging Markets.73 2008-09 2708.  Manufacturing of leather goods. the carpet industry was worth US$49 million. Government of India has played a major role in this transformation by taking several policy initiatives.12 10891.5 million people. such as harness and saddler 39 Indian Leather Industry.76 16185. Though the industry has transformed and developed over time. In 2009.27 16984. This massive industry provides employment to about 2.2009 (Rs in Crores) Item Carpet and other Floor Covering Other Handicrafts Grand Total (A+B) 2003-04 2779. Leather and Leather accessories 39 The Leather industry.86 2007-08 3524.65 17288.00 14012.28 7273.14 18567. due to the demand from new markets such as Russia and Dubai.59 19267. Indian leather industry can be an attractive industry for investment because of its growth and its ability to capture major share in the global trading market.3: Export of Handicrafts over the period 2003 .Table 5. Investments can be made in various sub-sector of the industry:  Tanning and finishing of leather products  Manufacturing of leather garments  Manufacturing of leather footwear and footwear parts.78 8183. holds a strong position in the Indian economy.06 2006-07 3674.

clocks .01 847. automatic data processing machines. The leather industry is expected to double its current manufacturing value to US$8 billion and exports to about US$4 billion. Machinery and Appliances Sector In considering the sector Machinery and Appliances a number of sub sectors has been considered like Power generating machinery .80 3428.06 154. the Government has been taking significant measure to promote rapid growth and qualitative advancements. after China.83 387. Metal working machinery . India.85 2981. Currently major players are exploring India for opportunities of global expansion.34 105.17 915. India‟s vast resource of raw hides and skins would form the basis for the growth of this industry. optical goods. is the second largest global manufacturer of footwear. The industry is also known for its scientific and technological leadership through which it has made qualitative improvements.04 187. The growth of the leather industry can be attributed to special economic zones.4: Export targets from 2007-08 to 2010-11 (In Million US$) Product 2006-07 Actual Export Leather Footwear Garments Leather Goods Saddlery & Harness Total 688. As mentioned above. By achieving this. Looking at the significant potential for growth.25 308.63 915.70 5689.60 372.85 4682.21 2007-08 2008-09 2009-10 2010-11 Source: Indian Leather Industry: Perspective and Export Potential From the above table.98 690. government‟ permission to 100 per cent foreign equity. watches . telecommunication and sound recording apparatus. forming strategic alliances for the development of a component industry through joint ventures.88 358. the leather industry would be able increase to 4% in world leather trade from its current 3%. India is would be one of the best destinations for investing in leather and leather product industry. establishing leather complexes in five states and modern tanneries abiding by all environmental laws.66 3892. Photo apparatus.85 1967. Electrical machinery.Specialized machinery . the leather and leather industry has been among the oldest.00 2597. it is evident that Indian foot wear industry holds a major share in the leather industry.63 403.Table 5. industrial machinery Office machines .30 948.66 81.53 733.69 127.26 785.05 1212. Among the other industries in India. 42 .19 6980.79 726. Professional and scientific instruments etc.78 870.87 798.

Ford Motors. Honda Motors.Automotive Sector 40 In studying the Automotive Sector we have taken into consideration two subsectors namely: Road vehicles and other transport equipment. especially for small cars. Tata Motors.The passenger vehicles segment during April-September 2010 grew at 32. Hyundai Motors. 43 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . automobile production in India increased from 9. MarutiSuzuki. Power Sector : Energy & Resources Industry 41 For the purpose of our analysis.India also has a strong presence of international companies like ToyotaMotors. Volkswagen AG. Mahindra & Mahindra. The sector witnessed the launch of the world„s first sub-US$ 2. The gas availability is mainly driven by several domestic gas discoveries in KG D 6 block and increase in capacity of LNG. Natural Gas: A Base Sector 41 Report – Anagram.8 million units in 2004–05. Crude oil price leaped almost two times from the US$40/bbl to US$80/bbl in 2009. Fiat. Currently India is the World„s second-largest two-wheeler market and Asia„s third-largest passenger vehicle market.India is emerging as a as a manufacturing and R&D hub. However it worth noting that the average consumption of gas per capita is low when compared to the average global consumption. Exports more than doubled in five years to 1. Ashok Leyland. BajajAuto. PiaggioVehicles. Renault. General Motors.7 to 14 million units. started to deteriorate in the end.8 million units in 2009–2010 from 0. Between 2004–05 and 2009–2010. Eicher are some of the Key Indian players in the market .91 per cent over same period last year. Exports from the auto component industry are estimated to be worth US$ 5 billion in 2010-11.86 per cent during AprilSeptember 2010. The two wheelers segment of the industry registered a growth of 25. But the demand from India and China seem to remain robust. The demand. Hindustan Motors.500 PV. however. Renewable and Non-renewable. we have combined the three major sectors of Power. Dollar appreciation and bullish reports on the demands from international agencies attributed to such a huge jump. Production of gas in India has seen a steep growth in March 2010 to about 72% YoY. Tata Nano(an innovation in the ultra-low cost segment). Daimler AG. 40 IBEF Indian Oil and Gas – Prabhudas Lilladher. and Petroleum and natural gas and have calculated the cumulative RCA. TVS Motor Company.

In the power and fertilizer sector. natural gas has been used as a fuel as well as feedstock. If RCA is less than unity. The numerator is the share of the exports of a particular sector in the total exports of the country while the denominator is the share of the particular sector‟s exports in the total world exports. The RCA index of a country for a particular sector is defined as the ratio of two export shares.3 Competitiveness analysis In our study. we have used the Revealed Comparative Advantage (RCA) index to arrive at the competitiveness of each sector for a chosen set of countries. it can be concluded that the particular country has a comparative advantage in the particular sector and an opening of the trade in the sector would be beneficial for the country. Decreasing RCA can be interpreted as a sector losing its comparative advantage. However. which has resulted in natural gas emerging as a cheap alternative source of energy. Thus in sectors where a country has an RCA of greater than 1 and it is higher than other countries. The Index can take a value between 0 and +∞.The demand supply gap is gradually narrowing due to the commencement of production from KG D 6. despite India‟s production capability. by comparing the country of interest‟s trade profile with the world average. RCA indices use the trade pattern to identify the sectors in which an economy has a comparative advantage. There has been continuous rise in crude oil price. The tightness in the supply of natural gas is set to be eased by commencing peak production at RIL‟s GS-D6 gas field. 44 . 5. the country is said to have a comparative disadvantage in the commodity/ industry. the supply for natural gas does not match the demand adequately. Graphs for RCA Computation Given below are the plots of the trend of the RCA index for the various sectors over a period of the past fifteen years.2. A country is said to have a revealed comparative advantage if the value exceeds unity.

8: RCA Comparison of Medical and Pharmaceuticals products sector over the period 1995 .00 ASEAN India China USA EU(27) Source: Author’s Calculations based on United Nations Conference on Trade & Development Data Graph 5.80 1.00 1.7: RCA Comparison of Chemical and Pharmaceuticals sector over the period 1995 – 2009 RCA for Chemical and Pharmaceutical Sector 1.40 1.Graph 5.00 0.00 0.20 1.60 1.40 0.20 1.20 0.2009 RCA for Medicinal & Pharmaceutical products 2.20 0.00 ASEAN India China USA EU(27) Source: Author’s Calculations based on United Nations Conference on Trade & Development 45 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .60 1.80 0.60 0.60 0.40 1.40 0.80 0.

and Leather and Leather Accessories over the period 1995 – 2009 RCA for Textiles.50 3.50 2.00 ASEAN India China USA EU(27) EU(27) Source: Author’s Calculations based on United Nations Conference on Trade & Development Data Graph 5.50 4.00 4. Apparels & Accessories 5.50 3.00 2.Apparels & Accessories .00 3.00 1.00 ASEAN India China USA EU(27) Source: Author’s Calculations based on United Nations Conference on Trade & Development Data 46 . Handicrafts and Crafts . Apparels and Accessories.50 0.00 1.00 0.Graph 5. Apparels and Accessories over the period 1995 – 2009 RCA for Textile.50 0.00 3.00 2.00 0.9: RCA Comparison of Textile.00 4. Leather & Leather Accessories 5.50 4. Handicrafts and Carpets.50 1.50 2.50 1.10: RCA Comparison of Textile.

6 1.2 1 0.2 0 ASEAN UK India Germany China UAE USA Source: Author’s Calculations based on United Nations Conference on Trade & Development Data 47 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .8 0.11: RCA Comparison of Handicrafts and Carpets over the period 1995 – 2009 RCA for the Handicrafts and Carpets Sector 14 12 10 8 6 4 2 0 ASEAN India China USA EU(27) Source: Author’s Calculations based on United Nations Conference on Trade & Development Data Graph 5.4 1.2009 RCA for the Machinery and Appliances Sector 1.8 1.12: RCA Comparison of Machinery and Appliances sector over the period 1995 .Graph 5.4 0.6 0.

13: RCA Comparison of Electrical Equipments sector over the period 1995 .00 1.8 0.2 0 ASEAN India China USA UK Germany Source: Author’s Calculations based on United Nations Conference on Trade & Development Data 48 .2 1 0.00 2.6 1.50 1.6 0.14: RCA Comparison of The Automotive sector over the period 1995 – 2009 RCA for Automotive Sector 2 1.2009 RCA for Electrical Equipment Sector 3.00 ASEAN India China USA EU(27) Source: Author’s Calculations based on United Nations Conference on Trade & Development Data Graph 5.50 0.50 2.00 0.4 0.4 1.8 1.Graph 5.

India had higher comparative advantage than China.00 6.Graph 5. Although the ASEAN bloc has had RCA greater than one over the last eleven years. In our study we have clubbed the sectors of Textiles Apparels and accessories. Our analysis shows that India has higher RCA values in this sector compared to the ASEAN countries. ASEAN economies have RCA value greater than 1. ASEAN on the other hand has comparative advantage in Machinery and Appliances Sector. Handicrafts and Carpets and Chemical and Pharmaceutical sector. Calculation of RCA shows that India enjoys very high Comparative advantage in this sector. Leather goods. Gems and Jewellery.00 5. but the value of their index is lower than India. Apparels and Accessories sector separately to see where India stands globally. India stands to gain from trade with the ASEAN countries in this cumulative sector.00 1. and Handicrafts under one sector and done the RCA Analysis.00 ASEAN India China USA EU(27) UAE Source: Author’s Calculations based on United Nations Conference on Trade & Development data Analysis of Comparative Advantage From the graphs above it is evident that India has comparative advantage in the sectors of Textiles Apparels & Accessories.00 8. throughout the period of study implying them having some comparative advantage. not only in comparison to the Asean economies. but also globally.00 4.00 2. Globally China and India have higher comparative advantage in comparison with the rest of the economies under study.00 0. 49 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . the value of RCA has been much lower compared to India.15: RCA Comparison of Power Sector over the period 1995 .2009 RCA for Power Sector 9.00 3. but it has been overtaken by China in recent years.00 7. Owing to the importance of the textile industry in the Indian economy we have computed the RCA index for Textile.

This means that although ASEAN has some comparative advantage in this sector. but the index has fallen for the year 2009. and the decline in 2009 appears to be a one-off event.72%. Thus India is in general in more competitive than ASEAN in this sector. RCA for India in this sector has been greater than one. Globally the economies of EU(27) together enjoy comparative advantages in Chemical and Pharmaceutical sector in comparison to the rest of the world. although it exhibits a falling trend over the years. In contrast India has the lowest RCA values among all the economies considered in the study. We also considered the subsector of Electrical Equipments and did computation for RCA for this sector separately. This can be interpreted as India having some comparative advantage in this sector in general. RCA has been increasing in this sector. The ASEAN countries exhibit a very high RCA in this sector and thus have high comparative advantage in this sector.378% of export in 2009) and thus has not been considered in this part of the analysis 50 . India definitely stands to gain in this sector if trade is opened up between the two trade partners. ASEAN economies have had RCA greater than one over the last seven years (with the exception in 2006) but RCA index for the ASEAN counties has been much lower than India. Further. Their share in the total world exports in Electrical Equipments stands at 14. In this particular sector ASEAN countries have had RCA Values lower than one throughout he period of study. In the Automotive Sector and Energy sector neither India nor ASEAN has any comparative advantage globally. They had a globally higher RCA value till 2005. India on the other hand has very low RCA (less than1) and thus no comparative advantage (or comparative disadvantage) in this sector. it is much lower than that of India. given the importance of the medical and pharmaceutical sector to the Indian economy. In the Chemical and Pharmaceutical industry India has had RCA values greater than 1 since 1998. 42 Leather Goods form a very insignificant part of India‟s export (0. Economies of Malaysia and Thailand are global leaders in manufacturing of electrical equipments. we have also analysed India‟s competitiveness in this sub sector separately. As for the ASEAN countries RCA values have been consistently at values below 1 throughout the period of study. RCA value fell steeply in 2009( falling below 1 to . It is seen that India is a global leader in this sector. after which they were overtaken by China. This can be treated as an one-off event or a repercussion of the recession. throughout the period of study.Next we have taken the sectors of Handicrafts & Carpet and Gems & Jewellery 42 together and calculated RCA index for the sector. Unlike India. implying that India has gained comparative advantage in this sector over the time. The ASEAN countries have comparative advantage in the machinery and appliances sector. the index has remained stable and does not exhibit an increasing trend. They have globally higher RCA compared to all the other economies considered in the study.97) over 2008 values..

A key generator of employment. though it has been increasing over the period of study implying that India has had comparative disadvantage for most of the time period in this sector. owing to their specific economic scenarios like unemployment or unskilled workers.63% of ASEAN‟s. through USA has seen a decline in comparative advantage in the year 2009 (A probable effect of the recession). Many of these ASEAN countries are yet to recover fully from 51 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . financial. RCA values for India in the Energy sector has been low throughout. ASEAN countries together comprised 5. Laos. Thailand and Vietnam.In the Automotive sector both India and the ASEAN countries taken together have RCA values lower than that of 1 . Indonesia. the service sector contributes approximately 58% of India‟s GDP.3 Impact of FTA on Services Sector Service has been one of the thrust areas of the Indian economy. but the index fell thereafter (though remaining in the range of 0. Currently negotiations between the ASEAN nations and India has been facing some serious road blocks over the issue of including services as a part of the FTA along with the free trade in goods. Currently India‟s share in world service exports stands at 2. Singapore.29% compared to 6. India has been demanding more liberalization in the Mode IV category so as to enable more Indian professionals like doctors. nurses. or Mode IV. with higher RCA figures implying more competitiveness compared to that of India. social and personal services. Concerns have emerged over the issue of movement of natural persons. Malaysia. Countries like Indonesia and Philippines have raised objection to such further liberalization. Exports in services stood at US$ 90. such as trading. as well as community. Handicrafts.Thus neither of the trading partners have any comparative advantage in this sector. Comparing India and the ASEAN economies. On the other hand. Globally Germany leads the world among the countries considered in the study followed by USA.98) implying revealed comparative disadvantage.64% for the year 2008 vis-a-vis 1. Myanmar. India‟s export share in this sector is at 1. 5.13% of total world exports in services in the year 2008. the Philippines. The ASEAN countries exhibited some amount of comparative advantage in the initial 4 years of the study.91 to 0. In the sector of Machinery and Appliances and subsector Electrical Equipments ASEAN economies stand to gain in comparison to India. For the FY 2009 ASEAN recorded RCA greater than 1.14% for merchandise trade.6 billion in 2009. It covers a wide range of activities. real estate and business services. Cambodia. transportation and communication. Chemicals and sub sector the medical and pharmaceutical sector from its trade with the ASEAN Economies. as referred in trade terminology. RCA figures were greater than one for the two FY of 2008 and 2007. the ASEAN economies have fared better than the Indian economy in this sector. but the index has again slipped at value less than 1 in 2009. chefs and accountants to find greater job opportunities in countries like Brunei. To conclude the section India stands to gain in sectors of Textiles.

The ASEAN countries have RCA value lesser than one implying that they have no comparative advantage. 52 .50 3. rather comparative disadvantage in this sector.50 1.50 4. ASEAN and major economies for some of the sub sectors within the service sectors have been given below.00 2. Below. indicating that it enjoys comparative advantage in this sector .00 1.50 2. Graphs plotting RCAs for India.50 0.00 3. Unemployment rates in Indonesia were around 8 per cent last year and poverty rate had reached 14.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 India ASEAN USA UK China Germany Source: Author’s Calculations based on United Nations Statistics Division statistics India has a RCA greater than one in the service sector.00 0.15 per cent in March 2009. Graph 5. So opening up service trade will prove beneficial for the Indian service sector as it enjoys a comparative advantage in this sector.the financial strain that overtook the entire world till recently.16: RCA Comparison for the service sector over the period 2000 – 2009 RCA for the Service Sector 4. we have analysed the competitiveness of India and ASEAN with respect to other major economies in the world in each of the major sub sectors within the services sector.

RCA values for ASEAN has been greater than 1 for the period of 2003 to 2007. in the year of 2008.00 2.50 0.1 Telecommunication Graph 5.50 1.00 0. where after the value has again fallen to less than one. where the value has dipped to 0. But overall India has always had greater value of RCA than ASEAN throughout the period of study. we have taken the entire communication industry together ( communication includes postal and courier services) in computing the Revealed Comparative Advantage 53 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . but its position has slipped. But the RCA value for the sector has been declining over the years.3.17: RCA Comparison for the Communication43 service sector over the period 2000 – 2009 RCA for Communications Sector 3.99.00 1.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 India ASEAN USA UK China Germany Source: Author’s Calculations based on United Nations Statistics Division statistics India has had RCA values greater than one in this sector though the period of study with the exception of. indicating that communication sector in India has been more competitive than that of ASEAN economies put together.5. 43 Due to unavailability of data for the telecommunication industry separately. Globally India had comparative advantage over other nations earlier.50 2.

5.00 0. 54 . ASEAN countries have RCA greater than one.00 6. India has a very clear comparative advantage in this sector in comparison to not only the ASEAN trading bloc.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 India ASEAN USA USA UK Germany Source: Author’s Calculations based on United Nations Statistics Division statistics RCA value for India has not only been greater than 1.18: RCA Comparison for the Computer and Information service sector over the period 2000 – 2009 RCA for Computer and Information Services 14.00 8. it has been higher than all the major economies.00 10.00 12.3.00 4.00 2. Opening up this sector for trade would immensely benefit the IT sector of the country which is already a global leader in the sector. but it is much lower compared to that of India.2 Computer and Information Services Graph 5. but also in respect to the other major economies of the world.

50 0.00 0.5.50 1. As far as the global scenario is concerned UK has the highest RCA followed by USA.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 India ASEAN USA UK China Germany Source: Author’s Calculations based on United Nations Statistics Division statistics The ASEAN countries and India have similar RCA in the financial service sector.3. 55 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .00 2. For the year 2008 the ASEAN countries had a higher comparative advantage over India in this sector. If trading was allowed the two economies could compete on a similar footing. Both the partners have had RCA below 1.50 2. UK leads the world in the comparative advantage in this sector.00 1.19: RCA Comparison for the Financial service sector over the period 2000 – 2009 RCA for Financial Services Sector 3. we can see that the two graphs have intersected thrice over the period of last nine years implying that two partners have been at a similar position in this sector with the rest of the world. If we study in detail the two plots depicting the RCAs for the two trading partners. depicting no comparative advantage or comparative disadvantage in this sector. Another reason for the low RCA‟s of India and ASEAN in this sector could be due to the regulatory environment in each of these economies where the Indian and ASEAN (especially after the 1998 financial crisis) financial sector regulators have restricted the exposure of these economies to the global financial markets.50 3.3 Financial Service sector Graph 5.

50 0.50 2.5.50 1.00 1. 56 .3. The low RCAs of both the countries could be due to strict regulatory norms in the sector for both India and ASEAN.20: RCA Comparison for the Insurance sector over the period 2000 – 2009 RCA for Insurance Services Sector 3. which can be interpreted as that neither has any comparative advantage in this sector.4 Insurance services Graph 5. Both have RCA lesser than one. One conclusion that can be drawn from the graph is that if trade is opened up in this sector the two trading partners would be able to compete on an equal footing as depicted by their RCAs.00 2.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 India ASEAN USA UK China Germany Source: Author’s Calculations based on United Nations Statistics Division statistics The ASEAN trading bloc and India exhibit very similar revealed comparative advantage in insurance services.00 0. The graph plotting the RCAs for the two countries have intersected four times over the period of last nine years.

50 0.50 3.00 2. though both have RCA lesser than one meaning that neither has any revealed comparative advantage in this sector.00 1. Malaysia and Thailand. Singapore continues to remain the largest market in ASEAN for India‟s merchandise exports. steel.3. India‟s trade with ASEAN is mainly concentrated in Singapore.00 0. organic chemicals.50 1. refined petroleum products.4 Impact on Industry – Supplementary Evidence This section presents the impact of the FTA on Indian industry based on anecdotal evidence compiled from published press reports and web based research.5. buffalo meat.5 Construction Services Graph 5. Germany leads the world in comparative advantage in this sector.21: RCA Comparison for the Construction sector over the period 2000 – 2009 RCA for Construction Services Sector 3. synthetic textiles. pharmaceuticals and gems & jewellery. auto components.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 India UK India China ASEAN China USA Germany UK Source: Author’s Calculations based on United Nations Statistics Division statistics At present ASEAN countries have a higher RCA in this sector in comparison to India. wheat.50 2. oilcake. 5. 57 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . The likely beneficiaries in India from the FTA are the exporters of machinery.

a number of Indian outbound companies have acquired Indonesian mines for supply of coal. In recent acquisition deals. An overview of some of these exchanges is highlighted below. The growing bilateral economic relationship is reflected in the rapidly rising trade between Singapore and India. iron particularly technology to gasify coal for energy needs  Singapore continues to be one of the largest trading partners of India.  The Indonesian Trade Minister. a country of notable importance for India is Indonesia. 2010 45 58 . Several rounds of discussion have focused on this sector.  In the joint statement on the Framework for India-Malaysia strategic partnership. mineral oils and fuels. Dr Mari Elka Pangestu in late 2010 commented that there is continuing interest from India to invest in coal mining in Indonesia than there is supply. comprising ships. During April-December 2009-10. according to data released by the Ministry of Commerce and Industry. Green Technology & Water of Malaysia and the Ministry of New & Renewable Energy of India has also been announced. relationships also in the energy and resources sector  For this sector. boats and floating structures. Cabinet Ministry level exchange has been planned to identify collaborative projects in the new and renewable energy sector. However. Therefore Indian companies have overcome this by taking a share in some of the Indonesian concessions. From India‟s perspective the bilateral discussions have mostly focused on using the Indo-ASEAN FTA as a base to grow trade with member countries. Asean-India and the Mekong-Ganga agreement to grow 44. Cooperation is also required in other areas such as processing of coal and 45.  Thailand‟s Deputy Minister of Commerce has recently stated that in the first 10 months of 2010. there has been a 30% rise in Indo-Thai trade value leading to expectations of $6.Energy & Resources The energy and resources sector is an important area which has received considerable attention in the Indo-ASEAN FTA. Bimstec. large concessions on mining activities are owned by Indonesian companies. Singapore continues to be the single largest 44 Economic Times. Thailand and India are converging on regional cooperation frameworks such as the AseanSaarc. Indian companies have considerable investments in the mining sector in Indonesia. Focus has also been given to the possibility of enhancing the scope and level of joint collaboration in the hydrocarbons sector between PETRONAS of Malaysia and ONGC Videsh Limited of India. and organic chemicals. 19 Dec. Setting up of a Joint Working Group between the Ministry of Energy. 22 Dec 2010 Business Line.14 billion. India‟s exports to Malaysia totalled US$ 2.5 billion bilateral trade next year.

boats and floating structures amongst others. according to data released by the Department of Industrial Policy and Promotion (DIPP). and natural gas are the three primary commercial energy sources. Table 5. India exported goods worth US$ 8.5 – Excerpt from the India ASEAN Plan of Action tabled on October 2010 2. this will help boost India‟s trade in this sector. entry into rural rectification projects. oil. and cooperate in energy policy and planning.4 Promote sustainable and optimal utilisation of renewable energy.investor in India amongst the ASEAN countries and the second largest amongst all countries with foreign direct investment (FDI) inflows into India. a lot still remains to be done to provide India with a competitive advantage for trade in this sector. Overall. totalling US$ 2.2 Promote and develop trade and investment interest in the electricity sector. During 2008-09.  In the Plan of Action to implement the ASEAN-India Partnership for Peace. Secondly. as well as in the establishment of institutional linkages for developing other programmes of cooperation.6. However.6. was mainly based on availability of indigenous resources. Coal was by far the largest source of energy.12 billion. Develop and strengthen institutional linkages between ASEAN Centre for Energy (ACE) and India to cooperate on R&D into energy efficiency and renewable energy. till the end of the 1980s. However. this bears well for India and the prospects of multilateral growth in the energy and resources sector is promising. Trade in commodities is quite prevalent in the region and India is an important part of it.6. this will substantially help India benefit in the long run from the India ASEAN FTA. comprising mainly of mineral fuels and oils. Progress and Shared Prosperity. as an importer there are tariffs and trade barriers that India face. collaboration advantages on oil and gas projects etc. and work towards liberalisation of power trade among ASEAN Member Countries and India. If tariffs related to imports from the region come down.45 billion to Singapore. the following extract addresses the cooperation plan on Energy. India is well-endowed with both exhaustible and renewable energy resources. India‟s energy policy. coal and new hydrocarbon projects. if there are secondary effects arising out of the India ASEAN FTA such as regional preference for an Indian consortium on a bidding process. The cumulative FDI inflows from Singapore during April 2000 and March 2010 were US$ 10.1 Promote and develop trade and investment interest in gas-related projects. and 2.6.6. energy efficiency and conservation.2 billion.4 billion in 2009-10. and to establish programmes of cooperation. Energy 2.3 2. Indian merchandise exports to Singapore totalled US$ 5. and pursue an integrated and coordinated development programme to establish compatibility of electricity grids. 59 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . ships. During April-December 2009-10. Coal. 2.

ASEAN Council on Petroleum. its skilled and hardworking manpower and together with regional strengths in industrial and managerial know-how and science and technology make ideal space for long-term economic complementarities and regional partnership. Focus on non-grid sectors have traditionally been low though there is a huge potential this area has not been addressed.A final thrust area under the India ASEAN FTA with an eye towards the future would be areas such as efficient technology and renewable resources. especially rapidly-growing economies of the region. Asian countries. While bilateral agreements (e. the 46 details are missing in the India-ASEAN FTA . It is therefore quite logical that the development of partnerships between producers and consumers should go a long way in addressing mutual concerns. Graph 5. South Asia‟s growing energy demands. Gas is increasingly taking the place of oil as a comparatively cheaper and cleaner source of energy. With the economic agenda of the ASEAN countries gaining 46 IEA-MoEN Joint Workshop on „OIL SECURITY AND NATIONAL EMERGENCY PREPAREDNESS‟ by Zainal Matassan. Tokyo A regional energy market could be formed through sustained dialogue.22 – ASEAN energy demand in million tons of oil 600 500 Vietnam Thailand Singapore 400 300 200 Philippines Malaysia Indonesia 100 0 1990 1999 2010 2020 Brunei Source: Asia Pacific Energy Research Centre. Energy producing countries are concerned about demand security.g. The surge in international energy prices leads to higher costs of production and to some extent slows 47 economic growth . This is where regional interdependence may best serve the interests of all parties. Regional energy cooperation is in the interest of entire Asia. need long-term energy supply security. 2007 47 Energy Resources and Regional Economic Cooperation in SAARC Countries – Ramzan Ali 60 . with Malaysia) take up the issue of collaboration in hydrocarbons and renewable sources. Regional countries need to strive to establish a structure in which regional producers would charge less from regional consumers on the basis of reciprocity in the region. Asia is one of the fastest-growth markets for oil in the world where half of the total incremental oil demand is forecast to take place during the next few years.

It is well known that China is one of the leaders in the global manufacturing sector. auto components synthetic textiles. 489 items are excluded from the list of tariff concessions. In spite of this. China has experienced growth in its manufacturing skills. organic chemicals. India's schedule of tariff concessions is heterogeneous in its product-wise composition and orientation of the implementation period for some of the subcountry groups Asean5 and CMLV comprising of Cambodia.importance. Another important factor in this arrangement is the China element. the India ASEAN FTA is expected to eliminate tariffs for about 4000 products (which include electronics. the likely beneficiaries in India are the exporters of steel. With limitless possibilities. output pattern and consequently export structure. Myanmar and Viet Nam. pharmaceuticals. thought much remains to happen on the ASEAN Power Grid. Exports from the manufacturing sector constitute over 93 per cent of its exports. other salient features of India's tariff concessions are the non-reciprocal nature of the implementation period with the less developed Members and inverted duty structure in the case of selected products. India‟s manufacturing sector on the other hand is approximately 17 per cent of its GDP and comprises a much smaller fraction of its exports. The items excluded are farm products. chemicals. There would be significant areas of synergy through which both parties will benefit. machinery. China‟s manufacturing sector accounts for 41 per cent of its GDP. This may be seen as being disadvantageous. In addition. Manufacturing The manufacturing sector is where India is expected to be impacted the most under the FTA framework. In respect of the sensitive items like crude and refined palm oil. coffee and pepper. tariff concessions will be graduated over a period of ten years. gems and jewelry. refined petroleum products. There are also certain technical issues arising from the text of the agreement. chemicals and textile products. Laos. It is important that India becomes a trading partner with ASEAN in relation to such large projects amongst Member countries. some auto parts. while duties on the remaining 800 products will be brought down to zero or near zero levels by December 2016. As indicated earlier. the idea of setting up an energy grid in the region is very encouraging. There is also a sensitive list comprising of items for which a timeline has been agreed upon. tea. machinery. After specializing in 61 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . the idea of cooperating in supply and availability of energy resources should be taken up on a priority basis under the India ASEAN FTA. machinery and textiles) out of which duties for 3200 products will reduce by December 2013. the CLMV group are required to fulfill their commitments only at a later stage for products covered under the Normal Track(1&2) and the Sensitive Track(1). For example. automobiles. Discussions have taken place in the past.

2010. Today China is the manufacturing hub of the world. The Agreement also provides for bilateral safeguard mechanisms to address sudden surge in imports after the Agreement comes into force. 62 . The flexibility to invoke the safeguard measures will remain available for both the sides for a period of 7 years to 15 years from the date. manufactures in the earlier part of the decade. safeguard measures including imposition of safeguard duties may be put in place for a period up to 4 years. it is quite imperative that India does not follow a protectionist regime and evaluates this from a long run perspective. footwear. India on the other hand has continued to specialize in lower levels of manufacturing and does not have the prowess currently to compete with China in the global or regional market. The Trade in Goods agreement focuses on tariff liberalization on mutually agreed tariff lines from both the sides and is targeted to eliminate tariffs on 80% of the tariff lines accounting for 75% of the trade in a gradual manner starting from 1st January. The details show that in the manufacturing sector. While there are definite benefits in terms of trade for India. it is for Indian manufacturers to realize this change as an opportunity and align their businesses accordingly. As the Union Minster of Commerce has earlier commented. pharmaceutical products. While this may well be the case in the short run. the India ASEAN FTA is a challenge as well as an opportunity. In such an eventuality if it hurts a domestic industry. steps are taken to provide a level playing field to the industry. the Agreement comes into force. apparel. there are sectors where for some commodities India does have a comparative advantage like organic chemicals. rubber and articles thereof and articles of iron or steel. Another question relates to the effect this India ASEAN FTA is going to have on the small and medium scale industries. Further. This will allow the small and medium size industries to be globally competitive. It is important that well before 2013. As customs duties are withdrawn. paper products. The exchange of tariff concessions between India and the ASEAN Member Countries would lead to growth in bilateral trade and investment resulting in economic benefits to India and the ASEAN Member Countries. textiles and auto equipment amongst others. electronics. China has since advanced to office machinery.unskilled labour intensive sectors like toys. there are also areas of concerns and challenges. However. Indian manufacturers would be able to source products and inputs at competitive prices from the ASEAN countries. will there be an inflow of cheap products flooding the India market and putting the small and medium scale industry at risk? Tariff lines which come to mind include food processing. electrical and electronic equipment and appliances.

Most of these countries have introduced massive stimulus programmes that are still supporting GDP growth. 63 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . With a view to exploring opportunities for Indian industry and entrepreneurs in ASEAN countries with respect to international trade and FDI (Foreign Direct Investment). Thailand is growing strongly this year but its medium-term performance will be constrained by political instability. They have also been boosted by capital inflows. Thailand and Vietnam. Vietnam's economy is strong (7% growth is forecast in 2011). have all benefited from the strong recovery in global trade and the strength of demand from China. this Chapter provides an analysis based on information on published tenders. Malaysia. a trend that we expect will continue despite policy weaknesses and concerns about the banking sector following excessive credit growth in recent years. Philippines. Business Opportunities in ASEAN Countries The main economies in the Association of South-East Asian Nations (ASEAN) like Indonesia. Singapore.6. This provides an indication of business opportunities and projects that Indian industry may capitalize on as a part of their advent into the ASEAN region once the FTA is in place. which will undermine investor and consumer confidence.

Television and communication equipment and related apparatus  Manufactured goods. etc. The Economic Transformation Program which was unveiled recently set forth an ambitious 10-year economic roadmap to power the country towards becoming a high income nation by 2020. furniture.  Education Services  Health and social work services Following is the country-wise snapshot of number of opportunities available. sanitation and environmental services. It involves 64 . bridges. apparatus. water-treatment plants. Industrial process control equipment. Optical instruments. school buildings. special-purpose products and associated consumables  Fabricated products and materials  Motor vehicles. Radio. Computers and Supplies  Instruments and appliances. handicrafts. trailers and vehicle parts  Consultancy Services: Architectural. as gathered from various sources.and refuse-disposal services. Horological instruments  Electrical machinery.1. equipment and consumables  Pharmaceuticals and Medical Supplies  Telecommunication. concrete work. equipment.6. canal construction. we find that there are ample business opportunities in “construction work” related activities in all the ASEAN countries. roads & highways. Accounting and Business  Software Services  Repair.1 Findings based on current open project tenders In terms projects announced. (Figures given in bracket show number of tenders available in that particular category.5% expansion in gross domestic product (GDP) in the first half of 2010 compared with -5% during the same period the previous year. sports facilities.1 Malaysia Malaysia has recovered from the global economic recession resulting from proactive measures undertaken by the Government and the successful implementation of two Economic Stimulus Packages amounting to RM67 billion. Legal.) 6. appliances apparatus and associated products  Office equipment. Construction. This segment includes construction of agricultural buildings. maintenance and installation services  Sewage. ASEAN countries also provided considerable number of opportunities in following industry/services categories:  Machinery. The effectiveness of these measures is reflected by the 9.

3 14.5 54. Gross National Income per capita is expected to increase by 103% to reach RM 48.000 536.9 No.9 9.4 3.1 34.investments worth approximately RM 1.500 15 13 13 6 16.00 0 Notably.438 3.9 76.5 4. 131 Entry Point Projects (EPPs) would be carried out across 12 National Key Economic Areas (NKEAs).000) within 10 years from RM 23.000 (US$ 15. Gas & Energy Palm Oil Financial Services Tourism Business Services Improving Electronics & Electrical Wholesale & Retail Education Healthcare Communication s Content & Infrastructure Agriculture Greater KualaLumpur Total 12 8 8 12 8 45.8 8.300 123.9 14. As an initial catalyst towards economic transformation.1 376 1.2 41.000 10 16 10 131 11.175 4 11 1 60 3.1 121.9 71. which are as follows – 65 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .9 6.700 (US$ 6. with 60 Business Opportunities (BOs) being made available as a result of it.9 17.5 18. of BOs Expected BO GNI Contribution in 2020 US$ b RM b 58.1 177 11.8 39.9 105.5 13.4 121 129 64.000 497.162 74.4 191. The main approach in transforming to a high income economy will be to adopt strategies based on specialisation.3 43.000 520.1 10.8 7 4 6 4 9 19.4 11.8 20.7 trillion by 2020. given that strong and sustainable competitiveness is difficult to achieve without specialisation.6 27. as summarized in the table below – EPPs National Key Economic Areas Expected EPP GNI contribution in 2020 US$ b RM b 141. from RM 660 billion in 2009.1 51. the ETP would be private sector driven – expected to fund 92% of the NKEA projects while the remaining funds would come from the government which would also act as an enabler and catalyst.1 4.7 545 43.700) in 2009. This Plan will focus on 12 national key economic areas or NKEAs which have potential to generate high income.2 32.000 595.3 24.8 34.4 trillion (US$ 523 billion) with an objective to grow the Gross National Income (GNI) at six percent annually to hit RM 1.6 13.300.8 381 36.1 23.7 1.000 181.2 157. As a result of this.7 28.2 4 1 4 5 4.8 Jobs created Oil.200 245.1 52.400 275.1 62.

 Oil and gas. Advertising. The Business Services sector encompasses a vast array of industries and professions. the Healthcare NKEA intends to develop and pursue exports in generic drugs and reinvigorating our health travel segment with an investment of RM 23. namely. climate change. In order 66 .  Financial services.2 billion within 10 years. from content generation to networks.  Private healthcare. the pharmaceutical. IT services. Among the projects to be implemented include the establishment of the Oil Field Services and Equipment Centre in Johor with private investment of RM6 billion over a period of 10 years. To achieve this objective. Engineering. covering 41 sub-segments – healthcare. it contributed 10. requiring an investment of RM 217 billion from the private sector.  Education services. This NKEA is aimed at raising the sector‟s output and meet energy demand over the 10-year period.  Electrical and electronic. in order to increase skilled workforce to meet the service sector growth. and  Greater Kuala Lumpur.  Tourism. It is also aimed at enhancing downstream growth. the Oil. Events Management and Fashion to name a few. health travel and medical technology products segment. Accounting. Out of the above NKEAs. This industry has the potential to expand. Quickwins include to mandate health insurance for foreign workers and to create an eco-system to support clinical trials.  Wholesale and retail.  Agriculture. services and devices.  Business services.8% of GDP. The Communications Content & Infrastructure (CCI) sector spans a wide ecosystem. the ETP also aspires to grow the pool of skilled labor to 46% of Malaysia‟s workforce to support the skills demand from the sector.2% to GDP with export revenue amounting to RM56 billion. the ETP aims to grow three sub-sectors within the healthcare industry. With total healthcare expenditure representing 4.  Information and communications technology (ICT). that is fast growing and is driven by a series of powerful global trends which include globalization and outsourcing.  Palm oil and related products. rise of social media and IT enabled services. the Government will allocate RM146 million to support the sector. Consulting. Gas and Energy industry is one of the main contributors to the economy. In 2009. Law. making Malaysia the number one hub for oil field services and building a sustainable energy platform for growth. In addition. particularly in downstream activities. Construction. Thus.

The total project cost is RM5 billion.680 acres. Another major project is the development of the Malaysian Rubber Board land in Sungai Buloh covering an area of 2. Capital expenditure is estimated to amount to RM 51. This project. the tallest in Malaysia. while ensuring that it benefits all segments. including syariah experts will be located in the KLIFD. The 10th Malaysian Plan will continue to focus on the provision of infrastructure to support national growth. The implementation of the high-speed broadband project will cover major towns. For the rural population. commencing in 2011. This is an integrated development project comprising a 100-storey tower. is expected to be fully completed by 2020. This will be complemented with the roll out of the Broadband for General Population which will provide coverage for sub-urban and rural areas. Major international banks and professional financial services firms. with an estimated private investment of RM40 billion. The project will retain Stadium Merdeka and Stadium Negara as national heritage. 67 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . Private investment is increasing through various strategic high-impact projects. the continued development of the communications content and infrastructure sector is therefore fundamental. as well as continue its efforts to encourage the private sector to invest in physical infrastructure and provide services such as skills training.5 billion over the 10 year period. the Government will implement the initiatives such as providing infrastructure facilities to facilitate construction of hotels and resorts in remote areas. Recently. an investment arm of the Government of Abu Dhabi. It would be critical to ensure smart deployment of next generation infrastructure throughout the country and capitalize on opportunity to develop Telecommunications as an enabler to other sectors. which generated revenue of RM53 billion in 2009. priority economic growth areas and industrial areas. with the tower expected to be completed by 2015. Construct several shaded walkways. The RM3 billion project will commence next year. offering a variety of affordable packages. Nexus Karambunai. Another landmark to be developed by Permodalan Nasional Berhad is Warisan Merdeka. agreed to develop the Kuala Lumpur International Financial District (KLIFD) valued at RM26 billion. For this. last mile broadband services will be provided through wireless infrastructure. More importantly. such strategic development will further strengthen Malaysia‟s position as the premier international Islamic financial hub. has the potential to provide more business and employment opportunities as well as further increase the nation‟s income. The entire development is estimated at RM10 billion and is expected to be completed by 2025. The Mass Rapid Transit (MRT) in Greater KL (Klang Valley) will be implemented beginning 2011. expected to be completed by 2020. a renowned resort in Sabah is committed to develop an integrated eco-nature resort. by leveraging on the natural beauty and uniqueness of Karambunai.to achieve a high-income economy. the 1Malaysia Development Berhad (1MDB) in collaboration with Mubadala Development Company. The Tourism industry. The Government is prepared to consider special incentive packages to attract investors to the KLIFD. the first in the world.

Upgrade the drainage and irrigation system 68 . construction of the liquefied natural gas regasification plant by PETRONAS in Melaka at an estimated cost of 3 billion ringgit as well as two aluminium smelters in SCORE Sarawak with an estimated cost of 18 billion ringgit.  Two coal electricity generation plants at an estimated cost of RM 7 billion. the KL International Financial District in Kuala Lumpur. This fund aims to help bridge the private sector viability gap with respect to projects that have a strategic impact and those with huge economic spill over. Among the projects are the West Coast Expressway. a Facilitation Fund of 20 billion ringgit will be provided under the 10MP. To help the private sector finance these projects. Malaysia Truly Asia Centre in Kuala Lumpur and Senai High Technology Park in Iskandar Malaysia. 52 highimpact projects worth RM 63 billion have been identified for implementation. Projects that are being considered for financing under this fund include Land Reclamation in Westport in Port Klang.Smart and effective partnerships between the public and private sectors will be established to drive the economic transformation agenda. Guthrie-Damansara Expressway. This will include Develop largescale integrated Aquaculture Zones. Johor. However. MTDC will also host an International Venture Capital Symposium in 2011 to enable networking and partnering of foreign and local venture capitalists to boost high technology industries. These include projects such as the Kuala Lumpur Strategic Development by 1Malaysia Development Berhad (1MDB) covering the Sungai Besi Airport area. The Electrical and Electronics (E&E) industry remained the largest contributor to exports with 41% or RM228 billion in 2009. These include:  Seven highway projects at an estimated cost of RM 19 billion. The Venture Capital industry plays an important role in contributing towards economic growth. the Government will provide Entrepreneurship Enhancement Training Programme to train 500 new technopreneurs and attract more angel investors. The Government allocates RM3. particularly in high technology sectors such as information and communication technology (ICT). particularly in Penang and the Kulim High-Tech Park in Kedah. The private sector will also have the opportunity to participate in the development of several projects led by government-linked companies (GLCs). To date. A sum of RM857 million is allocated for local companies to invest in high value-added activities. For this. the E&E industry is still focused on assembling activities.8 billion in 2011 to increase productivity and generate higher returns in the Agriculture sector. biotechnology and the creative industry. and  Development of the Malaysian Rubber Board‟s land in Sungai Buloh. Selangor covering an area of 3. The fund is expected to attract private sector investments worth at least 200 billion ringgit during the Plan period.300 acres at an estimated cost of RM 10 billion. Sungai Juru Expressway and Paroi-Senawang-KLIA Expressway.

However. Optical instruments. Malaysia tenders and RFP's from electrical machinery. there seem to be a genuine scope for the Indian business groups to help Malaysia in achieving their top priorities in these sectors. Research. Several programmes and activities will be designed to enhance innovation. The NKEAs will have dedicated focus from the Prime Minister and will have fasttrack mechanisms to resolve disputes or bottlenecks. Build an International Centre for Crops of the Future. films. peat and other coal-related products (2)  Construction work (203)  Electrical machinery. equipment and consumables (62)  Fabricated products and materials (31)  Food products and beverages (4)  Forestry and Logging industry (1)  Instruments and appliances. Pharmaceuticals sectors. equipment and consumables are invited and in great demand in Malaysia. as discussed above and the flourishing competencies & strengths of the Indian entrepreneurs in the fields of Infrastructure. fashion design. chemical products and man-made fibres (4)  Clothing and footwear (4)  Coal. Other product / services categories where number of opportunities available are given below: Opportunities by Product categories  Agricultural. Industrial process control equipments. it will focus its efforts on the NKEAs because of the significance of the GNI contribution that these parts of the economy can drive. The Malaysian Government is committed to the ongoing support of growth in the non-NKEA sectors. the Government will develop a creative industry policy in an integrated manner. Foster partnership between small-scale fruit and vegetable farmers with anchor companies. Development and Commercialisation (R&D&C) activity will be the platform for enhancing value-added activities across economic sectors. advertising. Energy. hunting and related products (1)  Chemicals. apparatus. crafts and cultural heritage. This industry encompasses animation. Information Technology. lignite. There are as many as 203 business opportunities in construction work related activities. Horological instruments. To fully tap the potential of this industry. Based on the focus areas / NKEAs of the Malaysian Economy for the coming years.as well as use high quality paddy seeds to enhance productivity. creation and commercialisation of new products. The creative industry has great potential for further development to generate national income. To accelerate the economy towards a high-income nation. horticultural. (19) 69 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .

and refuse-disposal services. apparatus and associated products (69)  Manufactured goods. Plastic and Film products (2)  Telecommunication. cultural and sporting services (1)  Repair. Accounting and Business (51)  Hire services of machinery and equipment and of personal and household goods (1)  Hotel and restaurant services (3)  Land transport services and transport via pipeline services (2)  Membership organization services (1)  Miscellaneous services (3)  Postal and Telecommunications services (1)  Printing. Legal. defence and social security services (1)  Agricultural. travel agencies services (3)  Water transport services (2) 70 . appliances. publishing and related services (3)  Real estate services (1)  Recreational. maintenance and installation services (34)  Sewage. horticultural and other related services (9)  Air transport services (2)  Consultancy Services: Architectural. forestry. equipment. furniture. trailers and vehicle parts (4)  Office equipment Computers and Supplies (15)  Paper and Pulp products (2)  Printed matter and articles for printing (5)  Rubber. handicrafts. sanitation and environmental services (12)  Software Services (7)  Supporting and auxiliary transport services. Construction. special-purpose products and associated consumables (12)  Metals and associated products (5)  Mining. Television and communication equipment and related apparatus (13)  Textiles and textile articles (4)  Transport equipment (3) Opportunities by Service categories  Administration. quarrying and other associated products (2)  Motor vehicles. Radio. Machinery.

Barring further major problems in global finance.  Design activities. It will continue to build a society where everyone has the best opportunity to reach further and stretch their potential.  Acquisition of intellectual property – for example. The Singapore Government‟s one of the major areas of investment is aimed at catalysing improvements in enterprises themselves. Budget 2010 provides a major investment for the future. Singapore‟s growth for 2010 is expected to be around 4.1. trademarks. its GDP contracted by 10%. the Resilience Package kept confidence up and helped Singapore avoid the worst of the global crisis. and designs. Taking both the recession and the recovery together.2 Singapore As the world suffered its worst and most wide-spread recession in over 60 years. Budget 2010 sets out the main actions the Government will take to help Singapore succeed in these new directions. come up with new products and services and generate additional revenue streams. clusters and even enterprises. the Singapore economy contracted less than most other highly globalised economies. even with slower growth of work force. The Singapore Government has accepted the key thrusts of the Economic Strategies Committee (ESC) report. but has since fallen back to 3%. The Government will support businesses that are re-engineering their work processes and re-designing jobs so as to help their employees create more value their efforts to innovate – to gain competitiveness. and innovating to create more value. The Singapore Government will also extend substantial grants to specific industries. it would cover spending on the following activities within this innovation value chain –  Research & Development. Resident unemployment reached 5% in the third quarter of 2009. when a company buys a patent or copyright for use in its business. It will provide tax incentives for businesses in all sectors to invest in upgrading their operations and creating new value. and those which are expanding abroad. the Singapore Government will launch a sustained initiative to help enterprises and workers raise productivity – by deepening skills and expertise. Singapore could not avoid this global contraction as a small economy which lives by exporting to Asia and the world as from the peak to the trough of this cycle.5%.5% to 6. 71 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . it will help include everyone in growth.  Registration of intellectual property – including patents. Third. which will also allow maintaining a healthy rate of economic growth of 3% to 5% a year. Singapore‟s key goal is to grow productivity by 2% to 3% per year over the next decade (more than double the 1% achieved over the last decade).6. Second. it will further support the growth of more globally competitive Singapore companies. First. Specifically. by helping companies which are seeking to commercialise R&D. and every family can progress and enjoy a better quality of life.

approved law practices will enjoy a 10% concessionary tax rate on incremental income derived from performing international legal services. with special emphasis initially on sectors where there is potential for large gains in productivity. and it will be done by incentivising private individuals with appropriate investment and business expertise to provide financing to start-ups. The National Productivity Fund will provide grants to help enterprises in all sectors.000 of equity investment in a qualifying start-up in a given year can claim 50% tax deduction on his investment at the end of a two-year holding period. The Maintenance. and access to business networks and markets. The Government wants to encourage more angel investments. Construction is a key sector which needs to improve. Under this incentive. Successful angel investors nurture start-ups not just by contributing funds. which will grow a knowledge base for enterprises to tap on to develop productivity solutions. with funding for initiatives customised to specific industries. Repair and Overhaul (MRO) business is a growing opportunity for Singapore. This deduction is subject to a cap of $500. The Fund can also be used to develop centres of expertise for a range of industries. clusters. Around $250 million out of the first $1 billion of funding for the National Productivity Fund will be dedicated to raising productivity in the construction sector. with less assurance of returns. To further enhance the competitiveness. and encourage institutions to build up high value activities and expand their professional teams in Singapore and will also introduce a tax incentive to grow shipbroking and extend that for maritime financing activities. It will further continue to update tax incentives for the financial services sector to ensure that they remain relevant. and upgrade to a higher quality workforce. The Singapore Government will complement this broad-based tax reduction for all companies which invest in innovation. and finally  Training of employees. This will include initiatives to help our local contractors develop capabilities in areas such as complex civil engineering and building projects. to invest in new technologies. Under this incentive. The Government will also introduce additional incentives to encourage the expansion of specific economic activities with high growth potential.000 of investments in each Year of Assessment. for which a new National Productivity Fund of $2 billion will be created. but also by providing mentorship. the 72 . an eligible angel investor who commits a minimum of $100. Angel investing is at the higher end of the risk spectrum. Automation through technology or software. Therefore the Government will introduce a new incentive for angel investors. Its productivity levels are estimated to be about half of that in Australia and one-third of that in Japan. and enterprises. First of these incentives will be to extend the Development and Expansion Incentive scheme to law practices providing international legal services so as to enhance position as an arbitration hub.

and innovative in the energy use. In line with the three broad priorities set out in the ESC Report. For this. will be renewed. and a location of choice for commercialization. R&D.Investment Allowance scheme which grants an additional 50% allowance for 48 aircraft rotables for another five years.5 percent of GDP by 2015 through increased private sector R&D expenditure. the Government plans to retain a globally competitive manufacturing sector at between 20 to 25 percent of the economy. the Singapore Government plans to explore coal and electricity imports in the medium term to diversify both the fuel types and fuel source countries in energy portfolio and continue supporting innovation and investing in the infrastructure necessary to develop renewable energy in the long term. the Singapore Government will encourage enterprise innovation and investments in technology and training. relevant of which are discussed below  Growing Through Skills and Innovation  With an aim to achieve higher productivity growth of 2 to 3 percent per year. and cross-disciplinary areas like bioelectronics and growing manufacturingrelated services such as headquarter-related activities.  Make Singapore a distinctive global city and an endearing home 48 Budget Speech 2010 Towards An Advanced Economy 73 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .  Anchor Singapore as a Global-Asia Hub  The Singapore Government aims to be the key base for global players seeking to tap into opportunities offered by a rising Asia by building on physical and cultural connectivity to Asia and the world and also to grow opportunities in ASEAN. Intellectual Property (IP) management and product lifecycle management by capitalising on the convergence of manufacturing with services. enabling GDP to grow on average by 3 to 5 percent per year over the next decade.  Make Innovation Pervasive. it plans to raise Gross Expenditure on R&D (GERD) to 3. with continued shift into complex manufacturing – areas where know-how and intellectual property are crucial such as nutriceuticals. the design and production of “mission-critical” components such as those in medical devices.  Become a Smart Energy Economy  To become resilient. both through broad-based and targeted sectoral approaches in addition to other initiatives. sustainable. the ESC recommends seven strategies over the next 10 years to sustain economic growth and enable broad-based improvement in Singaporeans‟ living standards. and Strengthen Commercialisation of R&D  To strengthen emphasis on business innovation and commercialisation of R&D and to establish Singapore as Asia‟s Innovation Capital – a hub for innovation and enterprise. working together with our regional partners to realise the vision of a single market under the ASEAN Economic Community by 2015.

This will call for bold and imaginative urban planning and redevelopment such as to develop a masterplan for the progressive development of a new waterfront city at Tanjong Pagar once the port‟s lease expires in 2027.develop thriving creative and arts clusters – distinguished for both their development of Asian content and appeal to an international audience. To realise the potential as a global city. building on the new vibrancy of the city and Marina Bay and to provide the best opportunities in Singapore for diverse talents to grow and develop. Singapore plans to focus more in two main areas: First. Singapore’s Strategy with iN2015  To establish an ultra-high speed. a high-level steering committee convened to spearhead the development of Singapore‟s 10-year masterplan. to grow the infocomm sector and to use infocomm technologies to enhance the competitiveness of key economic sectors and build a well-connected society. intelligent and trusted infocomm infrastructure  To develop a globally competitive infocomm industry  To develop an infocomm-savvy workforce and globally competitive infocomm manpower  To spearhead the transformation of key economic sectors. as well as new models for resourceefficient industrial clusters. to develop distinct eco-towns and residential precincts. to expand „land bank‟ by investing in the creation of underground space.  Second.g. to grow the software that will make Singapore a distinctive global city . on Jurong Island – where desalination and recycling of energy can be part of an integrated and cost efficient system. pervasive. government and society through more sophisticated and innovative use of infocomm Desired Outcomes  Enriched lives through infocomm  Enhanced economic competitiveness and innovation through infocomm  Increased growth and competitiveness of the infocomm industry Goals with iN2015  To be #1 in the world in harnessing infocomm to add value to the economy and society  To realise a 2-fold increase in the value-add of the infocomm industry to S$26 billion  To realise a 3-fold increase in infocomm export revenue to S$60 billion 49 Report of the Economic Strategies Committee 74 . e.49 In May 2005. Also aim to host more pinnacle global events. to develop the infrastructure necessary to provide the highest quality of life in Asia . especially around our transport nodes.

hot water and other sources of energy (4)  Fabricated products and materials (33)  Food products and beverages (11)  Forestry and Logging industry (3)  Instruments and appliances. quarrying and other associated products (1)  Motor vehicles. furniture. handicrafts. steam. apparatus. nuclear energy and fuels. Other product / services categories where number of opportunities available are given below: Opportunities by Product categories  Chemicals. appliances. To create 80. Plastic and Film products (4) 75 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . special-purpose products and associated consumables (24)  Metals and associated products (2)  Mining. Industrial process control equipment.000 additional jobs  To achieve 90 per cent broadband usage in all homes  To achieve 100 per cent computer ownership in homes with school-going children Considering the focus of the Singapore Government on the technology driven manufacturing. Optical instruments. apparatus and associated products (76)  Manufactured goods. keenness on innovation and infrastructure for the growth in the coming years. equipment. chemical products and man-made fibres (8)  Clothing and footwear (9)  Construction work (146)  Electrical machinery. gas. trailers and vehicle parts (6)  Non-metallic mineral products (2)  Office equipment Computers and Supplies (39)  Paper and Pulp products (2)  Petroleum products and fuels (1)  Pharmaceuticals and Medical Supplies (56)  Printed matter and articles for printing (21)  Rubber. research & development activities. Horological instruments. these sectors will definitely open up the gates for the Indian entrepreneurs willing to invest abroad in these sectors. (62)  Machinery. equipment and consumables (40)  Electricity. There are as many as 146 business opportunities in construction work related activities.

Accounting and Business (139)  Education services (93)  Health and social work services (4)  Hire services of machinery and equipment and of personal and household goods (5)  Hotel and restaurant services (21)  Insurance and pension funding services.and refuse-disposal services. Construction. basketware and wickerwork (1) Opportunities by Service categories  Administration. Telecommunication. publishing and related services (58)  Real estate services (3)  Recreational. Radio. maintenance and installation services (28)  Research and development services (1)  Retail trade services (3)  Services auxiliary to financial intermediation (2)  Sewage. Indonesia has emerged as a middle-income economy. politically stable. cultural and sporting services (62)  Repair.1. wood products. economically strong. sanitation and environmental services (7)  Software Services (90)  Supporting and auxiliary transport services.3 Indonesia As the first decade of the 21st century draws to a close. Legal. horticultural and other related services (3)  Air transport services (2)  Consultancy Services: Architectural. forestry. except compulsory social security services and insurance-related services (8)  Land transport services and transport via pipeline services (6)  Manpower Supply Services (3)  Membership organization services (1)  Miscellaneous services (2)  Postal and Telecommunications services (11)  Printing. and with 76 . cork products. defence and social security services (1)  Agricultural. Television and communication equipment and related apparatus (47)  Textiles and textile articles (5)  Transport equipment (15)  Wood. travel agencies services (21)  Water transport services (3) 6.

Private consumption is projected to increase by 5. On the basis of various policy measures pursued in various fields. non-oil and gas exports in 2010 are estimated to grow at 7-8%. In order to accelerate the process of economic recovery. at the average growth rate of 6. a sharp rise in poverty. Generally. Even though competition in the international market is getting tighter. agriculture.8% and exports of goods and services will grow at an average rate of 10. and by increasing industrial activities productivity. and also induced by the utilization of the increased competitiveness and efforts to create a conducive business climate for export activities. and from investment and the export of goods and services.5-5. while investment and exports are expected to gradually grow starting from 2010. there was reasonable growth during the impact of the global financial crisis in 2008. attempts to reduce the decline in export and the slow growth of investment have been intensified. fisheries.5-16.2%) sectors are projected to grow at high rates during the next 5 years. have increased since the beginning of 2009.7%. and near bankruptcy of the financial sector. to strengthen the industrial sector.1-6.0-7. economic growth originates from private expenditure. reaching 14.7% in 2014.3-6. retail and automobiles sales.7-11. Gas and Water (13. and industrial activities. Meanwhile. After experiencing negative growth in 2009.4%) and the Construction (8. Regarding expenditure. after experiencing the global financial crisis since the middle of 2008.5-3.9%). domestic expenditure has become the main contributor to economic growth and most of the domestic economic indicators.1-10.4-9. a 13 percent decline in GDP.7-15.8-13.6% per year. 77 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . Since the beginning of 2009. Transportation and Telecommunications (14.4% per year. First.8% per year over the next five years. The Indonesian economic condition in 2010-2014 is related to the state of the world economy. while economic growth declined slightly. when Indonesia experienced a severe economic crisis that resulted in the economic dislocation of millions of households. This was unexpected a decade ago. the prediction of improving world economy in 2010. the 2009 macroeconomic condition is as follows.increasing confidence and global standing. after declining at the end of 2008.6% in 2010 to 7.3-5. means that the value of non-oil and gas export in the 2010-2014 period is estimated to gradually increase. Investment is estimated to grow at an average of 9. the Electricity. and forestry sectors are estimated to grow at an average rate of 3. On the production side. Also. growth of the non-oil and gas processing industry will be increased to reach an average growth rate of 6. after experiencing low growth rates in the period 20042009. The measures to stimulate growth of the industrial sector will be through policies to expand the total number of the industrial business units.5% in 2014. as the main component of domestic demand.6% per year. such as consumers‟ confidence. Indonesian economy is expected to gradually grow from 5.

including the promotion of capacity building in science and technology and the strengthening of economic competitiveness. Indonesia has defined “the eight National Development Missions” such as – “Realizing an Indonesia as an archipelago nation that is self reliant. the increase in domestic demand will stimulate the growth of non-oil/gas import from 8-9% in 2010 to 18-19% in 2014.  The Fourth RPJM (2020-2025) aims to realize an Indonesian society that is self reliant. just. With such developments. and Program of the President. Mission. The strategy to implement the Vision and Mission is specified in five year stages into the Medium Term Development Plans (RPJMs). “Realizing a nation that is competitive”. it is estimated that the surplus in the current account will decline down to 2014. strong. The National Development Vision and Mission of RPJPN 2005-2025 is to be “INDONESIA THAT IS SELFRELIANT. With the deficit in services that remains high in 2010 to 2014. Each of the stages has a scale of priorities and development strategy that constitute a continuity of scale of priorities and development strategies of preceding periods. and that is based on the national interest”. it is estimated that foreign exchange reserves will increase to around USD 100 billion in 2014. Foreign direct investment (net) is estimated to continue to increase in the 20102014 period. and that has an increasingly prosperous population. advanced. AND PROSPEROUS”. The 2010-2014 National Medium Term Development Plan (RPJMN 2010-2014) is the elaboration of the Vision. just and democratic.On the import side. To meet the above Vision. “Realizing an Indonesia that is balanced and sustainable” and “Realizing an Indonesia that has an important role in the international community” etc.  The Third RPJM (2015-2019) is aiming for the greater consolidation of development in a comprehensive manner in all fields by emphasizing attainment of economic competitiveness on the basis of competitiveness of natural resources and the quality of human resources and by the increasing capability to master science and technology.  The Second RPJM (2010-2014) aims at the greater consolidation of the reform of Indonesia in all fields by emphasizing endeavors for increasing the quality of human resources. and prosperous through the acceleration of development in various fields by emphasizing the realized economic structure 78 . ADVANCED. JUST. advanced. while foreign portfolio capital flow is estimated to remain stable. the formulation of which is guided by 2005-2025 National Long Term Development Plan (RPJPN 2005-2025) of Singapore. The basic scale of priorities and strategies of the respective RPJMNs are summarized in the following:  The First RPJM (2005-2009) is directed at reforming and developing Indonesia in all fields that are aimed at creating an Indonesia that is safe and peaceful.

that is more solid on the basis of competitive advantage in various regions. The highest economic growth rate that Indonesia ever attained before the crisis was around 7%. A stabilized inflation rate will enable the attainment of the exchange rates and interest rates that are competitive.3 – 6. Following are Development priorities of Indonesia during next 5 years (till 2014)– The main national development targets of the National Mediumterm Developemt Plan (RPJMN) OF 2010-2014 No. and the total created employment opportunities rise from 9. The combination of economic growth and various government interventions are expected to be able to accelerate the reduction of the poverty rate to around 810% by the end of 2014.97 95.14 72. Within 1-2 years. The Second Medium-Term Development Plan is currently being implemented on the basis of the implementation. In accordance with the main problems faced by the Indonesian nation. and as the continuation of the First Medium Term Development Plan. In order to achieve accelerated economic growth. Economic growth is expected to be able to reduce the open unemployment rate by around 5-6% by the end of 2014. the government is determined to continue the process of accelerating economic development in the next five years.18 96 76 79 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .5 Status Target 2014 8. which lead to the inducement of healthy growth in the sector. the global economy should be recovered. 1 Development Economic Targets Average of 6.7 million units in the 2010-2014.8% per year a) Economic growth rate Growth of 7% before 2014 b) Inflation rate c) Open unemployment rate d) Poverty rate 2 Education a) Increased average school stay of ppeople of 15 years and older (yrs) b) Decline in illiteracy rate of population aged 15 and over (%) c) Increased net enrolment rate of elementary schools (%) d) Increased net enrolment rate of junior high school (%) Average of 4 ‐ 6% per year 5 ‐ 6% at end of 2014 8 ‐ 10% at end of 2014 Initial (2008) 7. which is at a lower level and is in proportion with nations that are equivalent to Indonesia. the government needs to continue with measurable and prudent macroeconomic policies in order to stabilize the inflation rate of 4-6% a year.25 in 5. and is supported by quality and competitive human resources. this can be reached again before the end of the period 2010-2014. achievements.6 million to 10.28 4.

in accordance with the National Transportation System and Multi‐mode Transportation Blueprint c) Completing the construction of the Optic Fiber Network in Eastern Part of Indonesia d) Repairing the transportation system and network in 4 big cities (Jakarta. in various industries including the above mentioned industries. Java. Kalimantan.22% per year Growth rate of 10. similar to the Malaysian and Singapore Governments. East Nusa Tenggara.000 MW per year Reaching 80% in 2014 Reaching 1. creates a lots of opportunities for India to explore business 80 . and Medan) Reaching a length of 19.000 live births c) Decreased infant mortality rate per 1.000 live births d) Decreased prevalence of nutrition deficiency (deficient nutrition and malnutrition) by infants (%) 4 Food a) Production of paddy b) Production of maize c) Production of soybean d) Production of sugar e) Production of cow meat 5 Energy a) Increased capacity of electricity generating stations b) Increased electrification ratio c) Increased production of crude oil d) Increased utilization of geothermal power stations 6 Infrastructure a) Construction of the Trans Sumatra. the Indonesian Governments has targeted few sectors as immediate priority sectors such as Energy. The burgeoning capabilities of the India Inc. social‐economic groups.No. Infrastructure. Health & Agriculture etc.000 MW in 2014 Growth rate of 3. and Papua infrastructure b) Construction of an integrated inter‐mode and inter‐island transportation network.370 km by 2014 3. Sulawesi.26 30 g) Reduced disparity in participation and quality of education services among regions. Surabaya.3% per year Initial (2008) 70. Bandung.7 228 34 18.05% per year Growth rate of 12.28 85 21.02% per year Growth rate of 20. Education. gender.4 Status Target 2014 72 118 24 Less 15 than in Completed in 2014 Completed before 2013 Completed in 2014 Therefore.01 million barrel per day in 2014 Reaching 5.55% per year Growth rate of 7. Development e) Increased gross enrolment rate of senior high schools (%) f) Increased gross enrolment rate at universities of those in 19‐23 years age bracket (%) Targets 64. and between education units that are implemented by the government and private institutions 3 Health a) Increased life expectancy (years) b) Decreased maternal mortality rate per 100. West Nusa Tenggara.

silver. handicrafts. equipment and consumables (8)  Electricity. lignite. being given special importance by the Indonesian Government itself. In India. special-purpose products and associated consumables (3)  Motor vehicles. Television and communication equipments and related apparatus (18) Opportunities by Service categories  Administration. gold. Petroleum and natural gas. forestry. chemical products and man-made fibres (3)  Coal. defence and social security services (5)  Agricultural. equipment. However. Other product / services categories where number of opportunities available are given below: Opportunities by Product categories  Chemicals. Construction. and coal. including bauxite. gas. peat and other coal-related products (1)  Construction work (116)  Electrical machinery. Accounting and Business. and mining forms the backbone of the economy. appliances. Radio. business tenders from Indonesia are invited from diverse industries with majority from construction. textiles. furniture. machinery and fabricated products. apparatus and associated products (16)  Manufactured goods. apparatus. nuclear energy and fuels. There are as many as 116 business opportunities in construction work related activities and 234 opportunities in Consultancy Services: Architectural. Natural Gas. Oil and associated products (1)  Pharmaceuticals and Medical Supplies (3)  Telecommunication. Legal. Industrial process control equipments. agriculture employs majority of the workforce. It is one of the world's major rubber producers and has a wide range of mineral deposits and production. Optical instruments.opportunities in Indonesia. apparel. (17)  Machinery. Horological instruments. trailers and vehicle parts (1)  Office equipments Computers and Supplies (23)  Petroleum products and fuels (1)  Petroleum(Crude). particularly those industries and sectors. horticultural and other related services (4) 81 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . copper. and tin. Indonesia has a market-based economy in which the government plays a significant role. nickel. hot water and other sources of energy (4)  Fabricated products and materials (2)  Food products and beverages (6)  Instruments and appliances. steam.

equipment and consumables (20) 82 . chemical products and man-made fibres (1)  Construction work (15)  Electrical machinery. travel agencies services (5) 6. The main trading partners are Japan.4 Thailand The economy of Thailand is an emerging economy which is heavily exportdependent. Other product / services categories where number of opportunities available are given below: Opportunities by Product categories  Chemicals. China. Legal. Accounting and Business (234)  Education services (11)  Health and social work services (2)  Hire services of machinery and equipment and of personal and household goods (2)  Hotel and restaurant services (2)  Insurance and pension funding services. Malaysia. maintenance and installation services (7)  Research and development services (1)  Services auxiliary to financial intermediation (2)  Sewage. There are as many as 15 business opportunities in construction work related activities. Construction. sanitation and environmental services (13)  Software Services (34)  Supporting and auxiliary transport services. except compulsory social security services and insurance-related services (2)  Land transport services and transport via pipeline services (3)  Membership organization services (4)  Miscellaneous services (4)  Oil and Gas Related Services (4)  Postal and Telecommunications services (12)  Public utilities (3)  Real estate services (6)  Recreational. and Singapore. Consultancy Services: Architectural.1. A large number of Thailand tenders are invited from Consultancy Services in Architectural. the United States. cultural and sporting services (2)  Repair. Accounting and Business. apparatus. with exports accounting for more than two thirds of gross domestic product (GDP).and refuse-disposal services. Construction. Legal.

equipment. Television and communication equipments and related apparatus (7)  Textiles and textile articles (1)  Transport equipment (3) Opportunities by Service categories  Consultancy Services: Architectural. There are as many as 1014 business opportunities in construction related activities.1. wood industry. Optical instruments. electronics assembly. The economy partially depends on its agriculture and on its export business. apparatus and associated products (10)  Metals and associated products (3)  Office equipments Computers and Supplies (10)  Petroleum products and fuels (1)  Petroleum(Crude). The government is putting its best foot forward to streamline the economy that includes increasing trade regulations. Oil and associated products (1)  Pharmaceuticals and Medical Supplies (3)  Printed matter and articles for printing (2)  Telecommunication. nuclear energy and fuels. improvement of infrastructure and privatization of the economy. chemicals. maintenance and installation services (3)  Research and development services (1)  Sewage. travel agencies services (2) 6. The flourishing industries are garment industry. appliances. Electricity. Legal. food processing industry. sanitation and environmental services (2)  Software Services (6)  Supporting and auxiliary transport services. hot water and other sources of energy (1)  Instruments and appliances. Industrial process control equipment‟s. gas. (2)  Machinery. In Philippines. pharmaceuticals industry.and refuse-disposal services. Construction. Radio. Other product / services categories where number of opportunities available are given below: 83 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . footwear industry. Horological instruments. steam. Natural Gas. a large number of procurement notices are from construction sector.5 Philippines Philippines is an economically stable country. Accounting and Business (17)  Manpower Supply Services (2)  Oil and Gas Related Services (1)  Repair. petroleum refining industry etc.

hot water and other sources of energy (3)  Fabricated products and materials (213)  Fish. apparatus and associated products (128)  Manufactured goods. Horological instruments. equipment. peat and other coal-related products (2)  Construction work (1014)  Electrical machinery. apparatus. forestry. fishing products and other by-products of the fishing industry (2)  Food products and beverages (19)  Forestry and Logging industry (2)  Instruments and appliances. trailers and vehicle parts (73)  Non-metallic mineral products (2)  Office equipments Computers and Supplies (167)  Paper and Pulp products (17)  Petroleum products and fuels (13)  Pharmaceuticals and Medical Supplies (199)  Printed matter and articles for printing (24)  Rubber. steam. quarrying and other associated products (23)  Motor vehicles. Optical instruments. cork products. nuclear energy and fuels. horticultural and other related services (11) 84 . Industrial process control equipments. basketware and wickerwork (12) Opportunities by Service categories  Administration. horticultural. defence and social security services (17)  Agricultural. appliances. Radio. equipment and consumables (72)  Electricity. special-purpose products and associated consumables (61)  Metals and associated products (16)  Mining. Plastic and Film products (30)  Telecommunication. hunting and related products (2)  Chemicals. Television and communication equipments and related apparatus (60)  Textiles and textile articles (17)  Transport equipment (9)  Wood.Opportunities by Product categories  Agricultural. wood products. handicrafts. gas. furniture. lignite. chemical products and man-made fibres (30)  Clothing and footwear (25)  Coal. (49)  Leather and leather products (6)  Machinery.

chemical products and man-made fibre (2)  Clothing and footwear (1)  Collected and purified water and water distribution (4)  Construction work (110)  Electrical machinery. except compulsory social security services and insurance-related services (6)  Land transport services and transport via pipeline services (3)  Manpower Supply Services (9)  Membership organization services (9)  Miscellaneous services (25)  Postal and Telecommunications services (6)  Printing. hunting and related products (1)  Chemicals. sanitation and environmental services (78)  Software Services (93)  Supporting and auxiliary transport services. A wide range of tenders are floated from consultancy services: Other product / services categories where number of opportunities available are given below: Opportunities by Product categories  Agricultural. horticultural. cultural and sporting services (28)  Repair.and refuse-disposal services.6 Vietnam Vietnam is a highly industrialized country that depends on tourism and exports for the economic development.1. maintenance and installation services (54)  Research and development services (1)  Services auxiliary to financial intermediation (20)  Sewage. Legal. Construction. The per capita has been growing owing to the foreign exchange earned from tourism. Consultancy Services: Architectural. equipment and consumables (52) 85 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . Accounting and Business (455)  Education services (70)  Health and social work services (40)  Hire services of machinery and equipment and of personal and household goods (6)  Hotel and restaurant services (12)  Insurance and pension funding services. publishing and related services (34)  Real estate services (11)  Recreational. apparatus. and exports from manufacturing sector. travel agencies services (16) 6.

Radio. hot water and other sources of energy (5)  Fabricated products and materials (23)  Instruments and appliances. Accounting and Business (233)  Education services (27)  Health and social work services (25)  Membership organization services (2)  Postal and Telecommunications services (2)  Public utilities (5)  Real estate services (3)  Recreational. sanitation and environmental services (25)  Software Services (61) 86 . special-purpose products and associated consumables (7)  Metals and associated products (3)  Motor vehicles. apparatus and associated products (29)  Manufactured goods. Legal. handicrafts. Electricity.Optical instruments. cultural and sporting services (6)  Repair. furniture. horticultural and other related services (20)  Consultancy Services: Architectural. (18)  Machinery. maintenance and installation services (7)  Research and development services (1)  Services auxiliary to financial intermediation (4)  Sewage. gas. forestry. Television and communication equipments and related apparatus (44)  Transport equipment (2) Opportunities by Service categories  Administration.and refuse-disposal services. Construction. appliances. steam. Horological instruments. nuclear energy and fuels. Industrial process control equipments . equipment. trailers and vehicle parts (5)  Office equipments Computers and Supplies (54)  Petroleum products and fuels (1)  Pharmaceuticals and Medical Supplies (24)  Printed matter and articles for printing (2)  Telecommunication. defence and social security services (10)  Agricultural.

a healthy. Growth also increases government revenues that can be invested into schools. Few countries have grown rapidly without a simultaneous rapid expansion of trade. India-ASEAN FTA and Vision for India’s Growth Shared and sustained economic growth is the most powerful driver of poverty reduction and is critical to achieving development outcomes. including the Millennium Development Goals (MDGs). rapid growth has almost always led to reduction in poverty. Growth and human development are therefore mutually reinforcing. creates job opportunities and raises household and government incomes. In turn.” 87 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper .7. roads. There has been a continuous and sustained reduction in the number of poor people in the world (despite the definitional confusion on “poverty”) and the fact that continued growth has been instrumental in achieving this outcome is hardly contested by any economist or policy maker. These are critical investments for growth and development . Columbia University economist Arvind Panagariya wrote in a paper 'Miracles and Debacles: Do Free-Trade Skeptics Have a Case?': “On the poverty front. there is overwhelming evidence that trade openness is a more trustworthy friend of the poor than protectionism. Evidence supports the idea nations more open to trade tend to be richer than those that are less open. Economic growth improves livelihoods. Higher household incomes directly reduce poverty and help people afford the basic necessities of life. and hospitals. well educated workforce is a more productive workforce. And a prosperous society is more peaceful and stable. One cannot be sustained without the other.

Yet.  Reduce child mortality. human rights conditions for workers and workplaces as well as other social issues like child labor and decline in overall levels of education. It is in this context that India laid out its Millennium Development Goals which are as follows:  Eradicate extreme poverty and hunger. 88 .  Achieve universal primary education. However. A lot will depend on the seriousness and will of the policy makers in the years ahead to foster an enabling government infrastructure that works on well defined priorities and a vision that will help India achieve growth with development and progress. by providing the Indian consumers access to cheaper and larger variety of products and generate employment for the rapidly expanding labor force.  Improve maternal health. FTA‟s can adopt create significant diversions from important issues such as environmental concerns. basic infrastructural constraints like safe drinking water and hygiene. malaria and other diseases.  Combat HIV/ AIDS. Evidence from across the globe suggests that there is a very real chance that FTA will result in domestic job losses as industries tend to resort to layoffs in an attempt to cut costs and compete effectively with the industries in other FTA countries. and a vast majority of its population living under extreme poverty.Seen in this light. but perhaps the future will evolve in a more optimistic way riding on the success of the ongoing trade and other policies that are pursued by the government. it is therefore amply clear that any policies to liberalize trade and remove protectionist government policies will help the Indian economy in the long run by making Indian industries more efficient and productive. The track record of the country in balancing these objectives have been dismal so far. Moreover. there are possible downsides to FTA‟s as well.  Promote gender equality and empower women. education. India has been lagging in terms of social sector priorities such as health. India‟s growth story in the last decade has been nothing short of remarkable.  Ensure environmental sustainability  Develop a global partnership for development Whether the trade liberalization and other multilateral agreements being pursued by the nation with its trading partners across the globe will help in achieving the stated MDG‟s is an open question at this stage.

tariffs on these products are slated to be reduced from current base rates by approximately 50 percent. tariffs of 0 percent) is scheduled to be achieved among all Parties by December 31.5 percent. 2019. at the latest. complete elimination of tariffs (i. 2019..  Normal Track: In general. Tariff Reduction and Elimination The Agreement envisages a gradual reduction in tariffs imposed by each Party on the other Parties‟ goods as per the timelines set out in the Schedule of Tariff Commitments.e. for goods classified under this category. 2003. envisages establishing a free trade area (“FTA”) to increase economic integration and cooperation activities between India and the ASEAN. the 0 percent tariff rate must be maintained by all Parties. 2010. To this end. the ASEAN-India agreement on trade in goods (“the Agreement”).  Sensitive Track: For goods under this track. Once achieved. Appendix Appendix 1 Summary of the India ASEAN FTA Introduction Pursuant to the Framework Agreement on Comprehensive Economic Cooperation signed by India and the ASEAN member states (“the Parties”) on October 8. tariffs must be reduced by all Parties to 5 percent by December 31. National Treatment The Agreement stipulates that each Party shall accord national treatment to the goods of the other Parties in accordance with GATT principles.  Special Products: These products refer to India‟s crude and refined palm oil. This 5 percent tariff can be maintained for only 50 product lines under this category and the remaining tariff lines must be reduced to 4. 89 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . the principles governing the conduct of trade in the FTA have been embodied in Articles 1 through Article 24 of the Agreement. and.8. at the latest. by December 31. on average. The following sections present a brief summary of the salient features of the Agreement. domestic taxes and regulations cannot be biased against imports from other Parties. 2019. i.e. The schedule groups goods into 5 different categories and sets out separate tariff liberalization rules for each of these categories.. effective January 1. coffee. black tea and pepper.

Safeguard Measures The Agreement provides for certain conditions under which a Party can initiate a “safeguard measure” and suspend its tariff reduction obligations in accordance with GATT and WTO standards.  Excluded List: Goods under this category do not fall under the purview of the tariff reduction schedule but are subject to annual tariff reviews for purposes of improving market access. in addition to goods wholly obtained or produced in the exporting Party‟s territory. Highly Sensitive List: This list consists of goods further classified into Category 1. In other words. In general. the following provisions would apply:  the importing Party has the right to suspend further tariff reduction and increase the tariff to its pre-FTA level. 2 and 3 with tariffs reduction schedules as given below. In such cases. The Agreement also contains a product-specific list of textiles and textile products that are eligible for preferential tariff treatment. and to forgo the payment of export subsidies. The Agreement provides very specific formulas for determining the AIFTA content including guidance on the calculation of ex-factory price (along with the specific costs to be taken into consideration). and Category 3: Tariffs on goods under this category must be reduced by 25 percent by the stipulated deadlines. such as import quotas. Rules of Origin The Agreement lays out detailed rules to be applied for determining the origin of products eligible for preferential tariff treatment under the FTA. 90 . all Parties are required to avoid the use of quantitative trade barriers. Each Party can unilaterally accelerate its tariff reduction ahead of the stipulated schedules if it so desires. A safeguard measure may be taken by an importing Party if it can demonstrate that its tariff reduction on a good has resulted in such increased imports of that good so as to cause (or threaten to cause) serious injury to its domestic import-competing industry. products with at least 35 percent of AIFTA content are eligible for preferential tariff treatment. Non-Tariff Measures Each Party is prohibited from instituting any non-tariff measure on imports of goods from the other Parties or on exports of goods to the other Parties‟ territories. Category 2: Tariffs on goods under this category must be reduced by 50 percent by the stipulated deadlines.    Category 1: Tariffs on goods under this category must be reduced to 50 percent by the stipulated deadlines.

In order to achieve prompt customs clearance of goods traded among the Parties. the tariff rate for the good shall be the rate that would have prevailed as per the original tariff reduction schedule. The arbitral panel must.  the exporting Parties affected by the safeguard measure have the right to seek compensation from the importing Party as per the standards specified by GATT and WTO principles. and  upon termination of a safeguard measure. The final report of the arbitral panel is final and binding on the Parties to the dispute. Dispute Settlement The Agreement provides for resolution of any dispute among Parties through procedures and mechanisms as set out in the ASEAN-India Dispute Settlement Mechanism Agreement (“DSM”). If no agreement on compensation is reached within 90 days. within 90 days of its establishment. each Party will endeavour to simplify its customs procedures and harmonize them with relevant international standards such as those recommended by the World Customs Organization. Customs Procedures Each Party is required to apply its customs procedures in a predictable and transparent manner. respectively. The arbitral panel consists of one arbitrator each appointed by the Complaining Party (“CP”) and the Party Complained Against (“PCA”). the safeguard measure may be maintained for a period of up to 3 years and may be extended for a period up to 1 year if continuing serious domestic injury can be demonstrated. The parties to the dispute may submit written comments on the interim report after which a “final report” is prepared. the affected exporting Parties have the right to suspend tariff concessions that are substantially equivalent on goods originating from the importing Party‟s territory.  the safeguard measure will not be applied on exports of a Party whose share of imports of the good concerned is less than 3 percent of the total imports from the other Parties. present its “interim report” containing its findings and determinations on whether the PCA has failed to meet its AIFTA obligations. In general. and a third arbitrator jointly appointed to serve as the chair of the panel. 91 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . the DSM envisages establishment of a three-member arbitral panel to settle disputes if mutual consultations fail. Balance of Payments Safeguard Measures The Agreement allows a Party to impose import quotas consistent with GATT and WTO provisions in order to safeguard its balance of payments.

Export intensity index is the ratio of export share of a country (or region) to the share of world exports going to a partner. Import share is the percentage of imports from a partner to total imports of a country/region. An index of more than one indicates that trade flow between countries/regions is larger than expected given their importance in world trade. It is computed as the dollar value of exports of country (or region) i to country(or region) j expressed as a percentage share of the dollar value of exports of country(or region) i to the world. It is calculated as: tij/Tiw twj/Tww TIIij= 92 . Xiw is the dollar value of the exports of country(or region) i to the world. Export share is the percentage of exports going to a partner to total exports of a country (or region). and Xww is the dollar value of world exports. It is computed as dollar value of imports of country/region i from country/region j expressed as a percentage share of the dollar value of imports of country/region i from the world.Appendix 2 Technical Appendix Export growth is the percentage change in the value of exports relative to the previous year. Total trade is the sum of the value of exports and imports. Trade intensity index is the ratio of trade share of a country/region to the share of world trade with a partner. Trade growth is the percentage change in the value of total trade relative to the previous year. A higher share indicates a higher degree of integration between partner countries/regions. Import growth is the percentage change in the value of imports relative to the previous year. A higher share indicates a higher degree of integration between partner countries/regions. It is calculated as: Xij/Xiw Xwj/Xww XIIij= where xij is the dollar value of exports of country(or region) i to country(or region) j. xwj is the dollar value of world exports to country(or region) j.

e. Apparels & Accessories Leather & Leather Accessories Handicrafts & Carpets Gems & Jewellery Textile yarn. optical goods. Power generating machinery and equipment(SITC 71) Specialized machinery (SITC 72) Metal working machinery (SITC 73) Other industrial machinery and parts (SITC 74) Office machines and automatic data processing machines (SITC 75) Telecommunication and sound recording apparatus (SITC 76) Electrical machinery. n. fabrics. and related Products (SITC 65) Textile fibres (other than wool tops and other combed wool) and their wastes (not manufactured into yarn or fabric) (SITC 26) Articles of apparel and clothing accessories (SITC 84) Leather. (SITC 77) Professional and scientific instruments. A higher share indicates a higher degree of integration between partner countries/regions. twj is the dollar value of world trade with country/region j. It is computed as the dollar value of total trade of country/region i with country/region j expressed as a percentage share of the dollar value of total trade of country/region i with the world.s (SITC 77) Textiles. (SITC 87) Photo apparatus.s. made-up articles.s. apparatus and appliances.. n. n. n.where tij is the dollar value of total trade of country/region i with country/region j.e. Tiw is the dollar value of the total trade of country/region i with the world.s.. Trade share is the percentage of trade with a partner to total trade of a country/region. Appendix 3 Classification of Sectors Sector Chemicals and Pharmaceuticals Subsectors along with codes  Chemical products (SITC 5) Medicinal and pharmaceutical products Electrical Equipments                      Medicinal and pharmaceutical products (SITC54) Electrical machinery.e.e.s. collectors' pieces & antiques Jewellery & articles of precious material. leather manufactures and dressed furskins (SITC 61) Works of art. and Tww is the dollar value of world trade. n. watches and clocks (SITC 88) Road vehicles (SITC 78) Other transport equipment (SITC 79) Fuels (SITC 3) Power generating machinery and equipment (SITC 71) Machinery and Appliances Automotive Sector Renewable & NonRenewable Energy 93 India ASEAN Free Trade Agreement A Deloitte-FICCI White Paper . apparatus and appliances. An index of more than one indicates that trade flow between countries/regions is larger than expected given their importance in world trade.e.

Shanto Ghosh Senior Director and Principal Economist – Transfer Pricing Dr. Suddhasatwa Roy Senior Manager .Contacts Dr.Global Transfer Pricing sudroy@deloitte.com 94 .

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